Unassociated Document
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-KSB
(Mark
One)
|
x
|
ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934
|
For
the
fiscal year ended December 31, 2007
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o
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF
1934 (No fee required)
|
For
the
transition period from
to
Commission
file number l-9224
Arrow
Resources Development, Inc.
(Name
of Small Business Issuer in Its Charter)
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DELAWARE
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|
56-2346563
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|
(State
or Other Jurisdiction of Incorporation or
Organization)
|
|
(I.R.S.
Employer Identification
No.)
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|
Carnegie
Hall Tower, 152 W. 57th Street,
27th
Floor, New York, NY 10019
|
|
(Address
of Principal Executive Offices) (Zip
Code)
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212-262-2300
(Issuer’s
Telephone Number, including Area Code)
Securities
registered under Section 12(b) of the Exchange Act:
|
Title
of Each Class
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|
Name
of Each Exchange on Which Registered
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|
|
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Common
stock - par value $0.00001
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|
OTC:
Bulletin Board
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Securities
registered under Section 12(g) of the Exchange Act: None
(Title
of Class)
(Title
of Class)
Check
whether the issuer; (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports),
and
(2) has been subject to such filing requirements for the past 90 days.
Yes x No
o
Check
if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained,
to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB o
Issuer’s
revenues for 2007, its most recent fiscal year, were $0 from continuing
operations.
The
number of freely tradable shares not held by affiliates is 17,254,089.
As
of
April 10, 2008, the aggregate market value of voting stock held by
non-affiliates of the Issuer was approximately $1,035,245.
The
number of shares outstanding of each of the issuer’s classes of common equity,
as of April 10, 2008 are as follows:
|
Class
|
|
Outstanding
at April 10, 2008
|
|
|
|
|
Common
stock - par value $0.00001
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|
649,743,240
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DOCUMENTS
INCORPORATED BY REFERENCE
None.
PART
I
Forward
Looking Statements
Certain
statements in this Annual Report on Form 10-KSB constitutes “forward-looking
statements” relating to the Company within the meaning of the Private Securities
Litigation Reform Act of 1995. All statements regarding future events, our
financial performance and operating results, our business strategy and our
financing plans are forward-looking statements. In some cases, you can identify
forward-looking statements by terminology, such as
the
negative of such terms or other comparable terminology. These statements are
only predictions. Known and unknown risks, uncertainties and other factors
could
cause actual results to differ materially from those contemplated by the
statements. In evaluating these statements, you should specifically consider
various factors, including the risks outlined under the Risk Factors set forth
herein. These factors may cause our actual results to differ materially from
any
forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements
are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. We are under no duty to update any of the forward-looking
statements after the date of this report to conform those statements to actual
results or to changes in our expectations.
Glossary
“Arrow”
-
Arrow Resources Development, Inc. (also referred to as the “Company”), formerly
known as CNE Group, Inc. prior to the name change that occurred on or around
December 1, 2005.
“Arrow
Ltd.” - Arrow Resources Development, Ltd., a company organized under the laws of
Bermuda and a 100% owned subsidiary of Arrow. Arrow Ltd. was acquired by Arrow
on or around August 1, 2005.
“APR”
-
Arrow Pacific Resources Group Limited, a British Virgin Islands company, is
currently the principal shareholder of the Company, owning 349,370,000 shares
or
53.78%.
“GMPLH”
-
Gerakan Masyarakat Pelestari Lingkungan Hidup, is a non-profit organization
in
Indonesia founded by A. H. Moerdani and Hans Karundeng. GMPLH is an educational
organization that acts as project developer, fundraiser, and project expeditor
for agricultural and environmental projects throughout Indonesia.
“P.T.
Eucalyptus” - P.T. Eucalyptus Alam Lestari is an Indonesian registered company
owned by Hans Karundeng and is a wholly owned subsidiary of Arrow Pacific
Resources Group Limited (“APR”). This company is the Indonesian operating
company that is the interface between GMPLH and all of the operating units
and
joint venture partners. P.T. Eucalyptus is responsible for the supervision
of
the planning of all harvesting, land preparation, and the planning of both
the
eucalyptus tree plantation and a large-scale agricultural
operation.
“Arrow
Pte.” - Arrow Pacific Resources (s) Pte. Ltd. is organized under the laws
of Singapore and is a wholly owned subsidiary of Arrow Pacific Resources Group
Limited (“APR”).
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Item 1.
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Description
of Business.
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Arrow
Resources Development, Inc. (“Arrow”) was incorporated under the laws of the
State of Delaware in 1968. Unless the context requires otherwise, the term
“Company,” “our,” or “we” refers to Arrow Resources Development,
Inc.
GENERAL
The
principal business of Arrow is to provide marketing, sales, distribution,
corporate operations and corporate finance services for the commercial
exploitation of natural resources around the world.
Our
temporary corporate executive offices are located at Carnegie Hall Tower, 152
W.
57th
Street,
27th
Floor,
New York, NY 10019 (212-262-2300) and our web site is
www.arrowrd.com.
INTRODUCTION
We
used
to be a telecommunications and recruiting company formally known as CNE Group,
Inc. We changed our name to Arrow Resources Development, Inc. on or around
December 1, 2005. The Company elected to shift its business focus from
telecommunications and recruiting to the worldwide commercial exploitation
of
natural resources.
Arrow
Resources Development Inc. (herein “ARD,” “Arrow Inc.” or “the Company”) was
established, in 2005, to serve as the corporate finance and management
infrastructure developer for large scale plantation/farming operations and
ethanol plants in Indonesia. These projects are first and foremost environmental
restorations and social engineering projects, being done in cooperation with
the
central and local governments of Indonesia, in partnership with Gerakan
Masyarakat Pelestari Lingkungan Hidup (GMPLH), the largest nonprofit
organization in Indonesia, as well a group of Indonesian joint venture partners
that includes Arrow Pacific Resources Group Limited; a British Virgin Islands
registered company, PT Wika Realty Inc. and Indonesian publicly traded
construction and land development company and PT Mitrasarana Infrakomindo,
a
public pension manager and natural resource development company. The government
of Indonesia has declared that 55,000,000 hectares (approximately 6% of the
country) to be “critical land”. Critical land is classified as land that has
been illegally harvested over last 50 years by approximately 25 million local
“farmers” who earn their living by cutting old-growth trees for their own use or
for sale, at a fraction of its’ value to local lumber companies. The goal of the
Arrow development team is to restore 3,000,000 hectares of this critical land
in
Indonesia through the creation of eucalyptus/corn plantations, ethanol plants,
several the large-scale farming (eucalyptus, corn, soy, rice, fish and chickens)
operations, an oil refinery and possibly several ethanol blending plants. It
is
anticipated that these development will require approximately 6 - 8 years and
when completed, will create approximately 200,000 local jobs, along with many
small local business opportunities. Arrow has developed and maintains the
corporate operating structure, financial operations, sales and marketing
infrastructure and the administrative group to oversee its’ corporate
citizenship programs. Arrow has outlined the necessary public relations and
communications programs to sustain these rapidly growing operations. Arrow
Resources, along with all of its joint venture partners, are collectively
referred to in this document as "the Companies".
Arrow
Pacific Resources Group Limited (herein “Arrow Pacific” or “APR”), a British
Virgin Islands registered company, was founded by Hans Karundeng, an Indonesian
industrialist and financier, for the purpose of developing natural resource
assets controlled by his group of local Indonesian Companies that are developing
plantation/farming operations and ethanol production plants in Indonesia. Mr.
Karundeng is the principal stockholder of our resources a member of the advisory
board of GMPLH and a board member of several prominent Indonesian Companies.
Arrow Pacific, through its local subsidiary Companies, has developed and will
manage these opportunities in Indonesia.
Arrow
Inc., along with its partners GMPLH and PT Eucalyptus Alam, an Indonesian
registered wholly owned subsidiary of Arrow Pacific Resources Group Limited
have
developed a synergy of agro-biotechnology and cutting edge forestry/agricultural
practices in response to the growing demand for timber and farming products.
When these practices are performed in a conscientious manner, it provides
humankind with one of the greatest sources for renewable and ecologically
sustainable resources. Paper, dimensional lumber, fiberboard, particleboard,
furniture, utensils, recreational areas, animal habitat, and clean air are
some
of the many benefits that will be realized through the implementation of these
programs in Indonesia.
The
Companies are executing their plantation/farming operating plan through the
implementation of a sound land management system, promote and/or establish
infrastructural development programs and provide provisions for financial,
economic and social growth to the people in the development areas. It is
essential for these developments to take into consideration local bio-physical
environment conditions as well as the traditional and cultural beliefs of the
local villagers. In conjunction with local inhabitants, the Companies have
developed a plan that will maximize profits to the greatest potential of the
area, while increasing employment and constantly re-evaluating their
administrative and management programs. The Companies are working to achieve
superior safety performance, implement reliable harvesting, replanting and
farming processes, and become a leader of the industries of sustainable forestry
and farming as well as leaders in the development of socially conscious and
environmentally sensitive land development throughout the world.
Arrow
Pacific has entered into Marketing and Distribution Agreement with Arrow
Resources Development Ltd. (a Bermuda Limited Company), which is a wholly-owned
subsidiary of Arrow Resources Development Inc., that provides for Arrow to
receive 10% of the gross sales generated by all plantation operations from
any
and all derivative products (e.g. paper, pulp, chips), 5% of gross sales
generated from all ethanol plants and a 50% ownership interest in all ethanol
plants. Under this agreement, Arrow acts as collection and disbursement
consultant and agent for all operations. In the case of each plantation, Arrow
collects all gross revenue from all customers, retains 10% and disburses the
remaining 90% to Arrow Pacific's various business units which becomes their
gross revenues. In the case of the ethanol plants, Arrow collects all gross
revenue from all customers, retains 5%, disburses all expensive tool suppliers
and labor and develops audited accounting to determine operating income for
distribution on a 50-50 basis. The
Companies’ Asian office is in Singapore, Jakarta and Kendari Indonesia and
satellite offices at each plantation or plant location. The following is a
brief
description of these transactions and relationships.
THE
COMPANIES
Arrow
Pacific, through its Indonesian operating division, PT Tiga Daun Nusantara
(and
locally registered Sulawesi company) is the principal operating company for
the
initial plantation and ethanol plant location in Tenggara, Sulawesi. Gerakan
Masyarakat Pelestari Lingkungan Hidup (GMPLH), a large nonprofit organization
based in Indonesia, for the development of a plantation/farming operation that
will include 3 million hectares (ha) on the islands of Kalimantan and Sulawesi
in Indonesia. PT Wika Realty Inc. and Indonesian publicly traded construction
and land development company and PT Mitrasarana Infrakomindo, a public pension
manager and natural resource development company.
This
program of reforestation is built around the development of eucalyptus and
corn
plantations, the development of ethanol plants as well as farming operations
designed to create a sustainable forestry and agricultural program. This program
will include local subsistence farming operations at each plantation for the
purpose of increasing and sustaining the income for local farmers. Through
the
development these subsistence
farms, which will be funded by revenue from the programs, thousands of local
farmers will plant and manage rice and soybean crops for local consumption
and
national distribution as well as fish farms and chicken farms for local
consumption and sale throughout the country.
Arrow
Pacific and all its subsidiary Companies in Indonesia, along with GMPLH, have
executed Agency Agreements in August 2006 with Arrow Resources Development
Ltd.
(the Bermuda registered wholly-owned subsidiary of our Resource Development
Inc.
herein referred to as "Arrow Ltd.") providing that the Company will advise
the
Companies on matters related to structured corporate finance, financial
administration, corporate management practice, marketing and distribution and
infrastructure. The Agency Agreements are for a term of 99 years while granting
the Company 10% of gross revenue.
PT
Tiga
Daun Nusantara, a wholly owned subsidiary of Arrow Pacific Resources Group
Limited, has opened its research and development office in Ujung Pandang for
the
purpose of developing genetically engineered eucalyptus tree saplings. PT Tiga
Daun Nusantara the first research and development office will provide the
genetically engineered eucalyptus tree saplings to be an initial
plantation/farming sites. By synthesizing aspects of American-style forestry
and
agricultural practices with these new advances in bio-engineering, the Company's
methodology produces a significant increase in both quantity and quality of
tree
production, corn, rice and soy production. The accelerated growth cycle, for
the
eucalyptus trees, produced by these processes yield a continually renewable
timber resource. Ujung Pandang, also known as Makassar, is the provincial
capital of South Sulawesi, Indonesia. It is anticipated that this facility
will
be fully operational no later than December 31st,
2008.
The
Companies are poised to capitalize on the increasing demand for the raw material
for the manufacture of paper, timber products, the company's agricultural
products and the demand for ethanol in the local market and all the regional
developing international markets, most notably China, where rising standards
of
living have created a demand for larger quantities of printed material,
packaging, personal care paper products, industrial paper supplies, corn, rice,
soy and the production of energy such as ethanol. The proximity of the Companies
operations to these local and principal markets enables them to supply these
markets in a highly competitive manner due to significantly reduce
transportation costs.
The
Companies have two significant timing factors that enhance their competitive
advantage for the production of eucalyptus. The first of these factors is the
application of newly developed agro-biotechnology. The growth cycle of the
eucalyptus trees in the Companies plantation areas is significantly faster
than
those of its competitors; 3 to 4 years, as opposed to a typical 10 to 12 years
on average. The technology also offers several other biological advantages.
The
bio-engineered trees are more resistant to adverse weather and infestation,
more
successful at growing in poor soil and are able to sustain growth without the
use of any toxic agro-chemicals. Several other lumbering operations in the
Pacific have been heavily scrutinized in the past for their heavy use of such
environmentally-degrading chemicals. The second factor is the proximity of
the
operations to the equator. This unique geographical position provides a growing
season that lasts a full 12 months of each year, in comparison to the 7 to
8
month seasons of many of its competitors.
These
significant advantages are also applicable to the production of the company's
agricultural products, most notably corn. The climate and rainfall enable the
growth of 2.5 crops of corn annually. This significant increase in land usage
lowest cost of the raw material and increases productivity while reducing
storage requirements and the amortization of fixed expenses associated with
a
single crop
The
Companies understand that any large-scale timber and agricultural operation
faces environmental and wildlife conservation concerns. In the interest of
good
corporate citizenship, a plan has been developed to ensure that all operations
are sensitive to the environmental and ecological importance of transforming
the
critical land into a sustainable and renewable timber resource in a responsible
manner. The Companies have consulted with their joint-venture partners GMPLH,
to
develop socially sensitive and environmentally friendly programs for developing
these sustainable resources and large-scale farming operations. The Companies
have also assembled its own local team of highly qualified scientists,
bio-engineers and environmentalists for the development of its technology
Center. This team has also examined methods proposed to establish a preserve
for
the relocation of wildlife, the preservation of biodiversity, the investigation
of potential medical benefit and the replanting of several noble species.
On
or
around August 1, 2005, Arrow Pacific Resources (s) Pte. Ltd. (“Arrow
Pte.”) entered into a Marketing and Distribution Agreement with Arrow Resources
Development Ltd. (“Arrow Ltd.”) (a Bermuda Limited Company), which is a
wholly-owned subsidiary of Arrow, that provided for both Companies to receive
10% of the gross sales generated by all plantation and mining operations and
any
and all derivative products (e.g. paper, pulp, chips). Under this agreement,
Arrow was to act as collection and disbursement consultant and agent for all
operations. Arrow was to collect all gross revenue from all customers, retain
10% and disburse the remaining 90% to APR’s various business units which was to
become their gross revenues.
However,
the World Bank and World Wildlife Federation have adopted forest management
guidelines to ensure economic, social and environmental benefits from timber
and
non-timber products and the environmental services provided by forests. Most
countries, including Indonesia as of 2007, have adopted these guidelines as
law
in order to promote economical development while combating the ongoing crisis
of
worldwide deforestation.
It
has
always been the policy of Arrow Pte to follow the international guidelines
for
the harvesting of timber in virgin forests. In December 2007, Arrow Pte.
assessed that it would be unable to harvest the timber products in Papua, New
Guinea due to the fact that the widely accepted international guidelines of
the
World Wildlife Federation had not been adopted by Papua, New Guinea. This fact
is adverse to the economic, social and environmental goals of Arrow Pte. because
with the amount of land that the project was allotted combined with the agreed
upon previous guidelines of the marketing and distribution agreement, yields
would be significantly reduced. Given the significant change in the economics
of
the harvesting of the timber in Papua, New Guinea, Arrow Pte. has decided not
to
pursue any further operations in Papua, New Guinea given that the above
restrictions cause a significant reduction in the volume of harvesting, which
results in a disproportionate cost to yield ration at the Papua, New Guinea
site
which makes the project not economically feasible in the foreseeable
future.
Based
on
the fact that Arrow Pte. is unable to fulfill their part of the agreement,
the
Company has reached the conclusion that the marketing and distribution agreement
has no value. Therefore, the Company has fully impaired the value of the
agreement and recorded a loss on write-off of the marketing and distribution
agreement of $125,000,000 at December 31, 2007.
The
companies’ Asian offices are in Singapore, Jakarta and Kendari Indonesia and
their plantation/farming activities are in Indonesia and Papua New Guinea.
Hans
Karundeng is a director of the nonprofit organization GMPLH and is the principal
stockholder of Arrow, the principal stockholder on APR and principal stockholder
of all the Indonesian registered companies.
Through
APR’s eucalyptus plantations in Indonesia and Papua New Guinea, we are poised to
capitalize on the increasing demand for paper and timber products in developing
international markets, most notably Asia, where rising standards of living
have
created a demand for larger quantities of printed material, packaging, personal
care paper products, and industrial paper supplies. The proximity of APR’s
operations to this principal Asian market enables APR to supply that market
in a
competitive manner.
THE
ARROW COMPANIES - GENERAL
Arrow,
as
part of the Management Agreement, has built and maintains all of the companies’
corporate finance activities, corporate operations structure, financial
management activities, international banking activities, supervision of all
accounting and auditing activities, corporate research and development
activities, maintenance of the companies’ global MIS, direction of all marketing
and sales activities and all the general administrative functions. Arrow has
also developed and maintained the companies’ scientific advisory team and
corporate citizenship programs. Additionally, the Company supervises all legal
and accounting activities necessary to retain its public listing.
APR,
with
its joint-venture partners, conducts all of the on-the-ground, day-to-day
plantation operations, all infrastructural development operations and all
shipping operations as they relate to the overall plan. APR is led by a team
of
highly qualified professionals with experience in the fields of plantation
management, agro-law, material science and analysis, agriculture, and forestry.
The team has contracted with necessary labor, heavy equipment suppliers,
transportation coordinators and shipping equipment. Several members of the
team
hold close affiliations with organizations such as the Timber Association of
Sabah, the National Sub-committee on Fiscal Incentives of Forest Plantations
in
Malaysia and the Scientific and Technical Committee of The Association Technique
Internationale des Bois Tepicaux.
GMPLH
is
one of the largest non-profit organizations in Indonesia. Founded by an
Indonesian group which included H. Moerdani, the organization’s current managing
director, and Hans Karundeng, GMPLH is an educational organization that acts
as
project developer, fundraiser, and project expeditor for agricultural and
environmental projects throughout Indonesia and the Asian-Pacific basin. Since
its inception in 1993, GMPLH has sponsored and completed more than 25
large-scale agricultural and educational projects resulting in the planting
of
more than 600 million trees throughout Indonesia. GMPLH has been initially
granted land licenses by the Indonesian government for more than 1.8 million
hectares (ha) (3.75 million acres) for a program that will ultimately include
3
million ha as part of large-scale reforestation and farming
efforts.
P.T.
Eucalyptus is an Indonesian registered company owned by Hans Karundeng. This
company is the Indonesian operating company that is the interface between GMPLH
and all of the operating units and joint venture partners. P.T. Eucalyptus
is
responsible for the supervision of the planning of all harvesting, land
preparation, and the planning of both the eucalyptus tree plantation and a
large-scale agricultural operation. The Ministry Of Forests in Indonesia
requires that local companies receiving operating licenses for operations on
each island. The local companies that will hold the licenses that P.T.
Eucalyptus has formed are PT Nusa Alam Sejahtera, PT Sumbur Utama Alam, PT
Tiga
Daun Nusantara and PT Tunas Hamparan Hijau.
Arrow
Pte. owns and operates natural resource companies throughout the Asian Pacific
market. Arrow Pte. is led by a team of professionals with experience in
agriculture and forestry. The team handles all of the on-the-ground and
day-to-day plantation operations, all infrastructural development operations
and
all shipping operations as they relate to the overall plan for the development.
The team has contracted with necessary labor, heavy equipment suppliers,
transportation coordinators and shipping equipment.
INDUSTRY
The
planet’s consumption of forestry products has more than doubled over the last 30
years as global population continues to grow. The increased demand for forestry
products has also led to the need for increased protection of forests and
wildlife, and a more public participation in forestry management. The demand
for
imported raw material for China’s low-cost timber manufacturing industries is
increasing sharply and establishing a more expansive market for international
suppliers. The forestry community in the Asia-Pacific region, where the
Companies’ plantation will be located, possesses an advantage in the industry of
greater periods of harvesting and re-growth in comparison to other countries
that experience periods of dormancy. This is primarily caused by adverse weather
and seasonal conditions. This enables growers in the region to cope with the
ever shifting goals and expectations associated with the rapid evolution of
social, economic and environmental issues that impact policies, legislation,
and
institutions. The increase in demand was rapidly exploited in many areas by
timbering operations that stripped forests bare with no regard for their
environmental damage, or replenishing the timber resources being consumed.
This
mercenary behavior was responded to with strict and immediate regulation and
monitoring of the industry by government environmental agencies and consumer
advocacy groups on lumbering operations worldwide. Despite the increase in
demand, the shortage of suppliers who are able to meet environmental standards
has caused the forestry industry to shrink by an estimated 9.4 million ha per
annum.
The
forestry industry involves harvesting, silviculture (the growing and cultivation
of trees), milling, value-added processing and manufacturing. Globally, the
industry is being pressured from many directions. Governments have attempted
to
improve the forestry industry with privatizing measures, which transfer the
property rights through the sale of natural forests or planned forests. Only
a
limited number of countries were involved in this practice in the 1970s and
1980s, and among them were Chile and China. In New Zealand, privatization began
in the late 1980s with the sale of 550,000 ha and in 2000, was shown to have
94%
of planted forests owned privately. Between 2000 and 2002, South Africa saw
the
benefits of this system and estimated that 90,000 ha became privatized.
Privatization typically consists of the management of natural forest concessions
or leases, volume permits or standing timber sales, outsourcing and
community-based approaches. Global paper consumption trends continue to edge
higher, confirming its utility as a low cost, high- performance and flexible
material. Paper has been labeled by many as “essential” for development and
modern living. Global consumption has increased by at least 25% during the
20th
century
and by a factor of three in the last three decades alone.
The
Asian
demand for timber and pulp supply has increased due to the rapid expansion
of
its economy and one of the largest population densities. These increases have
led also to the increase in usage of computers requiring more printing paper,
higher living standards, and the usage of more books, magazines and packing
boxes. These same factors also drive the increased demand for Eucalyptus Oil,
which China uses over 70% of the world’s production, and is projected to
increase as well as the demand for the wood chips, which is one of the principal
ingredients for manufacturing chipboard. Many experts believe China’s demand for
such material will continue for the next 30 years.
The
international market’s demand for timber derivative products continues to rise
as economic factors drive the consumption of such goods forward. Household
production levels directly impact the consumption levels of chipboards. A
nationwide study in China determined 80% of the finished products available
to
the market are developed in household processing level mills which cannot meet
the market demand. The insufficient rate in correlation with the high demand
for
timber raw material is so great that outside sources need to be employed. Aside
from the growing demand for corn products in the Asian market, Indonesia is
currently importing 1.5 million metric tons of corn annually to sustain its
ever-growing production of ethanol and demand for animal feed
products.
OPERATING
MODEL
The
Companies have developed a synergy of agro-biotechnology and cutting edge
forestry/agricultural practices in response to the growing demand for timber
and
farming products. When these practices are performed in a conscientious manner,
it provides humankind with one of the greatest sources for renewable and
ecologically sustainable energy. Paper, dimensional lumber, fiberboard,
particleboard, furniture, utensils, hydrocarbon fuel, recreational areas, animal
habitat, and clean air are some of the many benefits of the world’s forests.
The
Companies will execute their plantation/farming operating plan through the
implementation of a sound land management system, promote and/or establish
infrastructural development programs and provide provisions for financial,
economic and social growth to the people in the development areas. It is
essential for the development to take into consideration local bio-physical
environment conditions as well as the traditional and cultural beliefs of the
local villagers. In conjunction with local inhabitants, the Companies have
developed a plan that will maximize profits to the greatest potential of the
area, while increasing employment and constantly re-examining their
administrative and management programs. The Companies will work to achieve
superior safety performance, implement reliable harvesting, replanting and
farming processes, and become a leader of the industries of sustainable forestry
and farming as well as leaders in the development of socially conscious and
environmentally sensitive land development throughout the world.
The
Companies believe the affectivity of any forest management system hinges on
the
accuracy of obtaining pre-development information. They have commissioned
qualified and highly experienced foresters, surveyors and enumerators to conduct
surveys that will map out the harvestable area before the commencement of
development activities. The data obtained from these surveys will provide a
framework for the development of the infrastructure of the plantations. Local
inhabitants will be employed to operate the plantation/farming operations as
laborers and managers. There will also be teams of trainee plantation employees,
field doctors, security personnel, cooks and other basic labor to support the
large scale of operations being undertaken.
Possessing
a strong commitment to responsible environmental management practices, the
Companies will continuously monitor and improve the environmental outcomes
of
its operations. In the interest of good corporate citizenship, a plan has been
developed to ensure that all operations are sensitive to the environmental
and
ecological importance of transforming the virgin forests territories into a
sustainable and renewable timber resource in a responsible manner. The Companies
have consulted with the scientific and environmental communities regarding
the
establishment of a preserve for the relocation of wildlife, the preservation
of
biodiversity, the investigation of potential medical benefit and the replanting
of several noble species.
APR
plans
to construct a large number of roads to connect the project area with the
proposed factory area, harbor, camp site, local inhabitant living area, and
other major sites that require transportation to and from on a frequent basis.
Throughout this phase, inventory and tree marking will take place. The data
obtained from these surveys will provide a framework for the development of
the
infrastructure of the plantations. Local inhabitants will be employed to
participate in the operations of the plantation and, in some cases as
specialized loggers. There will also be teams of back-up plantation employees,
field doctors, security personnel, cooks and other basic labor to support the
large scale of operations being undertaken. In conjunction with the local
inhabitants, equipment specialists, as well as labor force specialist from
Indonesia and Singapore, APR has developed a fully operational on-the-ground
team ready to begin the first phase.
The
near-equatorial position of Indonesia and Papua New Guinea ensures a good supply
of rainwater for the tree crops year-round with little or no seasonal change,
aiding in maintaining the consistent growth cycle of only 3-4 years. The
specific location of the government granted timberland concessions in Indonesia
enables the trees to grow with minimal interference from open-ocean earthquakes
and large storms. In Papua New Guinea the concessions are protected from such
conditions by the large islands of New Britain and New Ireland, which act as
barriers at sea. Thus, the timberlands are all located in the areas most
conducive to growth, maintenance, transportation, and sale. The areas of
Southeast Asia allow eucalyptus tree and farming production to thrive due to
the
steady weather patterns and no real winter season.
PRODUCTS
The
forestland that will be the site of APR’s plantation in Indonesia are lands that
have been classified by the government as "critical land" meaning land that
has
been partially harvested illegally during the past 50 years and the Companies
have commissioned physical surveys on the target sites. The majority of the
noble species and selected hardwoods have been removed by illegal logging during
the past half-century. The general composition of the remaining species included
on the development sites are primarily whole new growth bushes, heavy brush
and
some small little grove saplings which all are somewhat suitable for the
manufacture of paper and paper products.
Due
to
the fact that all of the plantation and plant sites are considered "critical
land," the Companies have commissioned physical surveys on the target sites.
The
majority of the noble species and selected hardwoods have been removed by
illegal logging during the past half-century. The general composition of the
remaining species included on the development sites are primarily whole new
growth bushes, heavy brush and some small little grove saplings which all are
somewhat suitable for the manufacture of paper and paper products.
The
current raw materials that are being used for the manufacture of paper include
peelable logs, woodchips and pulp. Raw lumber stock (peel-able logs) for the
production of woodchips (the first step in the production of paper) is currently
selling at $80 per cubic meter, which shows an increase of 7% in the last year.
Pulp prices (the second step in the production of paper) are rapidly rising
and
have increased by more then $15 per ton in the last year alone. As of May 2006,
the average market price for pulp was $405 per ton. Paper prices have also
been
rising at approximately the same rate, and raw paper is currently being sold
ranging from $3,000 to $6,000 per ton, depending on its grade.
LEGAL
The
Company is a party to a lawsuit where the plaintiff is alleging that he is
entitled to $60,000 and 1,300,000 of common stock based upon CNE’s failure
to compensate him for services related to identifying financing for CNE,
based upon an agreement that was entered into between CNE and the plaintiff
in
April 2005. On November 28, 2007, the Company settled the lawsuit with the
plaintiff. In full and final settlement of the claims asserted in the action,
the Company has paid the plaintiff $10,000 in cash and issued the plaintiff
200,000 shares of the Company’s common stock on December 21, 2007.
In
May
2006, the Company was advised that they were in default of a settlement
agreement entered into in January of 2005 by CNE related to the release of
unrestricted, freely-tradable, non-legend shares of stock. In August 2006,
the
plaintiffs alleging the default obtained a judgment in the 17th Judicial Circuit
Court Broward County, Florida for approximately $1,000,000. On November 13,
2007, legal counsel engaged by Management brought a countersuit against the
plaintiffs alleging that the judgment obtained in that court was fraudulent
based on the plaintiffs’ perjury. The Company and its counsel strongly feel that
the plaintiffs’ claims against the Company have no merit, the likelihood of an
unfavorable outcome is very low, and is prepared to vigorously defend the
matter.
HUMAN
RESOURCES
As
of
December 31, 2007, our workforce consists of consultants. The majority of
our consultants are professional, technical or administrative personnel who
possess training and experience in finance, information management, and business
management. We have no union contracts. We believe that our relations with
our
consultants are satisfactory. In addition we rely on the personnel of APR,
described below.
APR
has
already assembled the necessary senior management and field operations personnel
required to initiate the project. The initial senior staff of APR and its
supporting clerical personnel are sufficient for operations in the first five
years. The initial senior management and field operations personnel of APR
is
sufficient for operations for at least a three years. During the initial
three-year period, APR will conduct an executive search for additional field
operations personnel and eventually the requisite personnel for the operation
of
the paper mill. APR will be responsible for staffing field and production
operations.
Since
the
projects in Indonesia are first and foremost an environmental restorations
and
social engineering projects the emphasis is on maximizing the use of local
labor
and job creation. APR is developing its technical/agricultural production center
on Sulawesi Island which is staffed by highly qualified Indonesian based
professionals. All manual operations will employ local resident farmers and
their families and all hiring will be coordinated by GMPLH. This approach is
designed to reengineer large-scale farming communities and redeveloped long-term
farming infrastructure.
The
companies have assembled, through their joint venture partners the necessary
senior management and field operations personnel required to initiate the
project. The initial senior staff, and its supporting clerical personnel, is
sufficient for operations in the first five years. The initial senior management
and field operations personnel are sufficient for operations for approximately
two years. During the initial two-year period, a human resource acquisition
and
benefits program will be completed and structured to grow as the projects
grow.
Since
the
health of the workers is not only based on physical conditions, special
attention must be paid to safety, adequate standards of comfort, sanitation,
nutrition and general welfare. Adequate training, which is appropriate for
job
requirements and satisfactory working conditions, is viewed by the companies
as
a primary and effective motivator since these considerations not only contribute
to improved safety, but they also contribute to improved efficiency.
Plantation/farming projects normally place a high priority on landowners'
participation in resource development and give employment preference to
landowners whose dedication reflects the investment they have in the success
of
their local economies.
Training
personnel will be required to maintain the highest level of safety for the
workers and the environment. The workers will receive training to identify
various tree species, measurement of trees, quality criteria for harvestable
trees and field organization for the pre-harvesting inventory. Training programs
for harvesting crews will consist of harvesting safety, proper cutting and
directional felling techniques, maintenance of chainsaw and chain sharpening,
field organization of harvesting activity, use of tree location maps and
criteria for deciding whether or not to fell a marked tree. Practical training
for extraction crews will consist of field considerations for reducing the
damage to the remaining forest stand, field organization of the extraction
activities, and use of tree location/extraction maps. Training programs for
farm
workers will include proper soil tilling methods, proper seeding techniques,
fertilizer techniques and management, irrigation techniques, testing and
allocations, harvesting techniques and proper use of crop rotation.
THE
MARKET
We
operate in the global market for companies providing marketing, distribution,
and financial advisory services. As this market is broad and often served by
non-public companies for whom little competitive information is available,
we
have provided additional information on the market in which APR
operates.
Paper
performs a range of core functions in the modern world. For many, it would
be
hard to imagine daily life without using paper, whether for communication,
packaging or for hygienic and household use. The steady growth in paper
consumption has confirmed its utility as a low cost, high performance and
flexible material. Global consumption has increased twenty-fold during the
last
century, and by a factor of three in the last three decades alone. During the
same period, growth rates in paper use among developing countries have doubled
that of the industrialized world. This can be correlated to the overall economic
growth in developing countries 5.5% to 6.4% of GDP. As a result, the developing
countries’ share of world paper consumption has climbed from 15% in 1980 to 25%
in 1993, with projections of 31% in 2010. Average per capita consumption in
the
USA alone is 333 kilograms, seven times the figure for the world as a whole
and
double the average for the developed world.
A
new
global distribution of paper consumption is emerging, in which Asia is becoming
increasingly dominant, driven by growth in Japan and China. In 1980, the region
accounted for less than one fifth of the world’s consumption of paper, today it
accounts for over 30%. Asia’s paper consumption is now over 80 million
tones, one-fifth higher than Western Europe and soon to surpass the United
States. China’s per capita consumption levels have risen by a factor of five
over the past two decades from approximately 20 kilograms per capita in 1975
to
225 kilograms per head in 1994. A further quintupling of Chinese paper use
over
the next 20 years would take consumption level over 100 million tones per
annum, about a fifth larger than current US levels.
The
Food
and Agricultural organization of the United Nations expects long-term demand
for
wood products to grow at 1.2% to 1.5% per annum. Japan is currently the
largest importer of hardwood woodchips, buying 18-20mt (million tons) per annum.
Korea is emerging as a significant market as its demand outstrips its own
domestic supply. Global paper consumption is set to rise from 54kg/capita in
2000 to 63kg/capita in 2015, largely as a result of strong growth in Asia,
led
by China, and Western Europe. China’s consumption of paper products has jumped
from 6 kg/ capita in 1980 to 30kg kg/capita and is expected to rise by about
50%
to 43 kg/capita in 2010. Projections anticipate China will have the capacity
to
consume 20mt of woodchip per annum by 2010. China’s small export of woodchip to
Japan is likely to cease as domestic demand increases, turning it into a major
importer of woodchip as the decade unfolds. Both consumers and paper makers
show
a strong preference for plantation fiber which should result in increased demand
in Asia, especially China and India. Although paper is traditionally identified
with reading and writing; communications have now been replaced by packaging
as
the single largest category of paper use. Only a small proportion is used for
personal care products. Paper usage varies from country to country but overall
is continuously increasing, demonstrating the importance of determining more
efficient methods to supply the demand.
The
overall return depends on the rate of timber growth, which in turn depends
on
soil types, rainfall, pest and weed control, fertilization and genetics. Timber
quality is judged based on species of tree, age of the wood and climatic
conditions in which the tree is grown. Price achieved will depend on the quality
of the product and the relationship between the grower and the customer. For
instance, a grower backed by a well capitalized company with a demonstrable
ability to fulfill a long term supply agreement would be favored over smaller,
less stable grower. Factors affecting costs include distance to export terminal
and processing logistics, topography of plantations and expertise of shipping
and/or transportation operator. Because of its proximity to the Asian market,
the locations allow shipments of timber to Asia to be made within 10 to 14
days.
Thus, APR can bring timber to the Asian market faster and at a higher profit
than its competitors.
As
mentioned above, Arrow Pte. has entered into a Marketing and Distribution
Agreement with the Company for the exclusive sales and distribution of the
commercial global marketing of natural resource projects, including but not
limited to timber resources, derivatives from it and other natural resources
for
a predetermined fee of 10% of Arrow Pte.’s gross sales activity in Papua New
Guinea. However, the World Bank and World Wildlife Federation have adopted
forest management guidelines to ensure economic, social and environmental
benefits from timber and non-timber products and the environmental services
provided by forests. Most countries, including Indonesia as of 2007, have
adopted these guidelines as law in order to promote economical development
while
combating the ongoing crisis of worldwide deforestation.
It
has
always been the policy of Arrow Pte to follow the international guidelines
for
the harvesting of timber in virgin forests. In December 2007, Arrow Pte.
assessed that it would be unable to harvest the timber products in Papua, New
Guinea due to the fact that the widely accepted international guidelines of
the
World Wildlife Federation had not been adopted by Papua, New Guinea. This fact
is adverse to the economic, social and environmental goals of Arrow Pte. because
with the amount of land that the project was allotted combined with the agreed
upon previous guidelines of the marketing and distribution agreement, yields
would be significantly reduced. Given the significant change in the economics
of
the harvesting of the timber in Papua, New Guinea, Arrow Pte. has decided not
to
pursue any further operations in Papua, New Guinea given that the above
restrictions cause a significant reduction in the volume of harvesting, which
results in a disproportionate cost to yield ration at the Papua, New Guinea
site
which makes the project not economically feasible in the foreseeable
future.
Based
on
the fact that Arrow Pte. is unable to fulfill their part of the agreement,
the
Company has reached the conclusion that the marketing and distribution agreement
has no value. Therefore, the Company has fully impaired the value of the
agreement and recorded a loss on write-off of the marketing and distribution
agreement of $125,000,000 at December 31, 2007.
Arrow
Ltd. entered into an agency agreement with APR to provides marketing and
distribution services for timber resource products and currently has an
exclusive marketing and sales agreement with APR to market lumber and related
products from land leased by GMPLH, which is operated by APR and it's
subsidiaries, located in Indonesia. Under the agreement Arrow Ltd. will receive
a commission of 10% of gross sales derived from lumber and related products.
COMPETITION
APR
principal plantation operations will be located in Indonesia in close proximity
to the Asian Pacific market enabling timber to be delivered with lower shipping
costs, and at higher profit. The distance for competitors to ship their products
includes a much greater cost and longer shipping period. These near-equatorial
locations ensures a good supply of rainwater for the tree crops, which aids
in
developing a consistent growth cycle of only 3-4 years. The specific location
of
the government granted timberland concessions, in Indonesia, enables the trees
to grow with minimal interference from open-ocean earthquakes and large storms.
Thus, the location of this timberland makes easier to transport and sell, and
easier to maintain.
The
existing forest industry is dominated by large foreign logging companies, or
landowning companies.
Australia
currently exports approximately 6.5 million tons of woodchips annually from
ports in Tasmania, Victoria and Western Australia. Australia’s stock in
plantations has risen rapidly over the past decade. Estimates show 455,000
hectares of new eucalyptus plantations have been established over the past
7
years. The Australian market competitors have relatively high entrance costs
and
higher service fess with lower potential return. Their harvesting cycles
typically take 6 years or longer and environmental risks weigh heavily on the
yield.
Brazil
has 400 million hectares of tropical forests, and 7 million hectares of exotic
plantations comprised mainly of fast growing eucalyptus. The timber from these
plantations provides raw material for charcoal, and pulp and paper production.
Brazil accounts for 60% of total charcoal production although native woods
are
mostly used for timber production; with an annual consumption rate around 250
million cubic meters.
Chile
has
around 5.5 million hectares of productive native forest, mainly Nothofagus
hardwood species. Timber production from native hardwood amounts to 0.35 million
m 3
/year,
and nearly 75% is used to produce chips for exports to Asian countries. Pine
and
eucalyptus plantations cover 1.8 million hectares, with an annual expansion
rate
of 7-10%. Pinewood accounts for 78% of total plantations; eucalyptus is growing
faster and a big surplus is expected within the next decade.
All
evidence points to a demand for woodchips that growing more rapidly than supply.
Quality and environmental issues result in a market preference for plantation
timbers. Given these conditions, woodchip prices are likely to rise in real
terms over a ten year period. After analyzing the major competitors in the
market it can be anticipated that the companies will capture a minimum of 4
to
5% of the market in the next ten years, making them one of the largest
distributor of woodchips worldwide.
The
raw
timber, pulp, and paper markets which APR hopes to enter are controlled by
several large and medium-sized well-established firms. These are the most
dominant international timber and paper companies:
INTERNATIONAL
PAPER
(www.ipaper.com): International Paper has $25 billion of annual sales, and
operates in almost 40 countries. They manage their own forests worldwide, and
produce raw timber stock, wood pulp, and finished paper products for
sale.
KLABIN
(www.klabin.com): Klabin operates primarily in Brazil, and is their leading
supplier of paper, pulp and wood products. They specialize in paper packaging
materials, including corrugated cardboard boxes and multi-wall stacks. They
also
sell lumber for construction. Klabin controls 183,000 hectares of land for
timber usage, as well as 119,000 hectares in southern Brazil used for medical
and wildlife research.
DAISHOWA-MARUBENI
INTERNATIONAL
(www.dmi.ca): DMI is one of the largest timber distributors in the Asian market,
catering primarily to Japan. It controls 2.9 million hectares of land in
western Canada, as well as a pulp processing plant. 50% of its sales go to
Japan, 25% to North America, and the remainder is split between the rest of
Asia
and Europe.
GEORGIA-PACIFIC
(www.gp.com): GP is one of the largest US based paper corporations. Though
they
have sold their pulp factory, they still receive pulp and timber materials
from
over 80 different suppliers for their paper business.
ASIA
PULP AND PAPER GROUP
(www.asiapulppaper.com): Outside of Japan, they are the largest pulp and paper
provider in Asia. Most of their production takes place in Indonesia, where
they
have the capacity to produce over 6.9 million tons of pulp.
WEYERHAEUSER
(www.weyerhaeuser.com): Weyerhaeuser is another large forest product company,
producing everything from pulp, paper and packaging to construction-grade lumber
for real estate and homes. They have operations in 19 countries, with their
timber stock comprised of 15 million hectares of land in 5 countries. They
have been a Fortune 200 company since the inception of Fortune’s rankings in
1955.
NEENAH
PAPER INC.
(www.neenah.com): Neenah paper primarily deals in technical paper, fine paper,
and pulp, catering to the high end of the paper market. They distribute their
products worldwide, and deal in more than 700,000 metric tons of bleached kraft
pulp every year.
INTEGRATED
TREE CROPPING
(www.itclimited.com.au): As the largest timber firm in Australia, ITC controls
almost 120,000 hectares of hardwood plantations.
POPE
& TALBOT
(www.poptal.com): Pope & Talbot principally manufactures wood and pulp
products. Wood Products business manufactures and sells standardized and
specialty lumber, residual wood chips, and other by-products. Together they
operate three pulp mills located in Halsey, Oregon and Nanaimo and Mackenzie
in
British Columbia. The pulp products are marketed globally through sales offices
in Portland, Oregon, Brussels, Belgium and through agency sales offices around
the world.
LONGVIEW
FIBRECOMPANY (www.longviewfibre.com):
Longview’s principal activity is to own, manage and operate timberlands, pulp
and paper mill and converting plants. It operates in three business segments:
timber, paper and paperboard and converted products. The timber segment owns
and
manages approximately 585,000 acres of timberlands in nine tree farms in Oregon
and Washington. The paper and paperboard segment includes the operation of
a
pulp and paper mill that produces corrugating medium and linerboard. The
Converted Products segment includes the operations of 15 converting plants
located in 12 states that produce value-added corrugated containers, specialty
packaging and creative point-of-purchase displays. The company exports its
products to Japan, China, Canada and Southeast Asia.
POTLATCH
CORPORATION (www.potlatchcorp.com):
Potlatch Corp.’s principal activities are to grow and harvest timber, convert
wood fiber into commodity and specialized wood products and bleached pulp
products. The Group operates through four segments: Resource, Wood Products,
Pulp and Paperboard and Consumer Products. The Group has foreign sales in Japan,
Australia, Canada, China, Italy, Korea and other countries.
RAYONIER,
INC.
(www.rayonier.com): Rayonier’s principal activities are to manufacture and sell
value-added performance cellulose fibers and activities associated with
timberland management, including the sale of timber and timberlands and land
management. They own and operate two fiber mills the United States. Rayonier
operates in three reportable business segments: performance fibers, timber
and
land, and wood products. Performance fibers include cellulose specialties and
absorbent materials. The timber and land segment manages timberlands, sells
standing timber to third parties and sells land for both future harvesting
and
real estate development. The wood products segment manufactures and sells lumber
and medium-density-fiberboard.
MERCER
INTL. INC. (www.mercerint.com):
Mercer’s principal activity is to produce and market pulp and paper products.
They are based in Zurich, Switzerland and have operations primarily in Germany.
Mercer manufactures and markets softwood kraft pulp and two primary classes
of
paper products. Their products are produced from both virgin fibre and recycled
fibre. Their manufacturing plants are located in Germany and
Switzerland.
DEMOGRAPHICS
The
climate of Indonesia is reported to be monsoonal in nature, characterized by
high temperatures and humidity throughout the year. However, the specific
location of the timber concessions within these countries enables the trees
to
grow with minimal interference from open-ocean earthquakes and large storms.
Operations in Indonesia are located inland, not on annual flood plains, not
on
islands with historically high earthquake activity and where there are active
volcanoes present.
EMPLOYEES
As
of
December 31, 2007, our workforce consists of consultants. The majority of our
consultants are professional, technical or administrative personnel who possess
training and experience in finance, information management, and business
management. We have no union contracts. We believe that our relations with
our
consultants are satisfactory.
Our
future success depends in large part on our ability to retain key technical,
marketing, and management personnel, and to attract and retain qualified
employees and consultants. Competition for such personnel is intense, and the
loss of key consultants, as well as the failure to recruit and train additional
technical personnel in a timely manner, could have a material and adverse effect
on our operating results.
Our
success also depends, to a significant extent, upon the contribution of our
executive officers and other key consultants. We have agreements with our chief
executive officer, and maintain an informal stock plan whereby key personnel
can
participate in our success. All of our personnel are eligible to participate
in
this plan.
RISK
FACTORS THAT MAY AFFECT FUTURE RESULTS
The
following discussion highlights certain of the risks we currently
face.
The
following factors, in addition to those discussed elsewhere in this document,
should be carefully considered. Securities of the Company involve a high degree
of risk and should be regarded as speculative. In addition to matters set forth
elsewhere in this Annual Report, potential investors should carefully consider
the risk factors described below relating to the business of the
Company.
LIMITED
OPERATING HISTORY
The
success of the Company cannot be guaranteed or accurately predicted. There
is no
assurance that the Company will be able to operate profitably. Such prospects
must be considered in light of the risks, expenses and difficulties frequently
encountered in the establishment of a product and service.
Arrow
began operations in approximately September, 2005, and to date has generated
no
material revenues. The Company has no significant operating history. There
is no
assurance that the Company will be able to operate and manage on a profitable
basis or that cash flow from operations will be sufficient to pay the operating
costs of the Company. The Company may need to raise additional capital to
finance its continued operations. The Company may seek additional financing
through debt or equity financings. There is no assurance that additional
financing will be available to the Company, or if available, that the financing
will be on terms acceptable to the Company. There is no assurance that the
Company’s estimate of its reasonably anticipated liquidity needs is accurate or
that new business developments or other unforeseen events will not occur that
will result in the need to raise additional funds. In the event that the Company
cannot raise needed capital, it will have a material adverse affect on the
Company. There is no assurance that the Company will achieve or sustain
profitability or positive cash flow from operating activities in the future
or
that it will generate sufficient cash flow to service any debt
requirements.
SIGNIFICANT
CAPITAL REQUIREMENTS & DILUTION
The
Company’s capital requirements are and will continue to be significant. The
Company anticipates, based on management’s internal forecasts and assumptions
relating to its operations (including the costs associated with marketing),
that
unless at least $1,500,000 is raised for working capital purposes, the Company’s
cash resources will not be sufficient to satisfy the Company’s contemplated cash
requirements and that additional financing may be needed to support the Company.
There can be no assurance that the Company will be able to obtain additional
financing on terms acceptable to the Company. To the extent that any financing
involves the sale of the Company’s equity securities, the interests of the
Company’s then existing shareholders could be substantially diluted. Dilution
will also occur when and if options to be granted to employees, consultants
and
other third parties are exercised.
DEPENDENCE
ON ARROW PACIFIC RESOURCES GROUP LIMITED AND ITS OPERATING
SUBSIDIARIES
Our
revenues are currently entirely derived from sales of APR and its operating
subsidiaries products sales. APR will not be in a position to generate timber
sales until it has completed certain infrastructure improvements in Indonesia.
The infrastructure requirements will take APR a maximum of one year to complete.
Therefore, APR will probably not generate meaningful sales of its timber
products until the third quarter of 2008.
COMPETITION
The
Company anticipates competition on numerous fronts. Increased competition could
require the Company to respond to competitive pressures by establishing pricing,
marketing and other programs, or seeking out additional strategic alliances
or
acquisitions, any of which could have a material adverse effect on the business,
prospects, financial condition and results of operations of the Company. The
Company could potentially have competitors with longer operating histories,
larger customer bases, greater brand recognition, and significantly greater
financial, marketing and other resources than the Company. Increased competition
may result in reduced operating margins, loss of market share, and a diminished
brand franchise, any of which would have a material adverse effect on the
Company. There is no assurance that the Company will be able to compete
successfully.
ABSENCE
OF DIVIDENDS & DIVIDEND POLICY
The
Company has never paid dividends on its Common Stock, but does anticipate paying
dividends on its Common Stock in the foreseeable future. The declaration and
payment of dividends by the Company are subject to the discretion of the
Company’s Board of Directors. Any determination as to the payment of dividends
in the future will depend upon results of operations, capital requirements,
restrictions in loan agreements, if any, and such other factors as the Board
of
Directors may deem relevant.
OWNERSHIP
OF THE COMPANY
APR
owns
53.76% of the Company’s stock. Hans Karundeng is the Chairman of APR. His son,
Rudolph, is a Director of the Company and is an 8% owner of the Company’s
stock.
DEPENDENCE
ON MANAGEMENT
The
success of the Company will largely be dependent upon the active participation
of its management. The Company does not currently have “Key Man” life insurance
on any of its current officers or employees, although the Company intends to
provide such insurance, based on availability of funds in the future. The
Company would pay all premiums for such “Key Man” life insurance. The time that
the officers and directors devote to the business affairs of the Company, and
the skill with which they discharge their responsibilities, will substantially
impact the Company’s success. Loss of the services of certain executive officers
of the Company could be expected to have a material adverse effect upon the
Company.
POSSIBLE
LOSS OF OR INABILITY TO ATTRACT KEY PERSONNEL
The
Company’s success depends largely on its ability to attract and retain highly
qualified managerial and industry personnel. There can be no assurance that
the
Company will be successful in attracting or retaining these key personnel.
The
loss of the services of key personnel could have a material adverse effect
on
the Company.
GENERAL
ECONOMIC AND OTHER CONDITIONS
The
Company’s business may be adversely affected from time to time by such matters
as changes in economic, industrial and international conditions, changes in
taxes, changes in government regulations, prices and costs and other factors
of
a general nature and in particular those changes which have an adverse material
effect on the natural resources industry or other industries in which the
Company becomes engaged to provide marketing, sales, distribution, corporate
operations and corporate finance services for the commercial exploitation of
natural resources around the world.
WE
MAY BE UNABLE TO CONTINUE AS A GOING CONCERN
These
consolidated financial statements are presented on the basis that the Company
is
a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
period of time.
As
shown
in the accompanying consolidated financial statements, the Company incurred
a
net loss of $129,023,304 for the year ended December 31, 2007 and a net loss
during the development stage from inception in November 15, 2005 through
December 31, 2007 of $133,810,007. The Company’s operations are in the
development stage, and the Company has not generated any revenue since
inception. The Company’s existence in the current period has been dependent upon
advances from related parties and other individuals, and the sale of senior
notes payable.
We
cannot
assure you when or if we will ever be able to operate on a positive cash flow
basis. If we are unable to achieve the level of revenues needed to attain a
positive cash flow, we may be required to take actions, including but not
limited to reducing our operations, seeking an acquisition and/or merging with
another entity, that could materially change and/or adversely affect our
business.
We
have a
history of losses and we cannot assure you that we will be able to operate
profitably in the foreseeable future, if at all.
Our
inability to achieve or maintain profitability or positive cash flow
could:
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result
in disappointing financial results,
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impede
implementation of our growth
strategy,
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cause
the market price of our common stock to
decrease,
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impede
our ability to procure financing on acceptable terms or at all,
and
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otherwise
adversely affect our business and financial
condition.
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Under
certain circumstances we could incur an impairment loss that could adversely
affect our stockholders’ equity.
We
will
require financing if our revenues do not meet our projections or our expenses
are greater than we anticipate, or to finance the further development of our
business. Our inability to obtain financing, if required, would have an adverse
effect on our business.
We
may
need to obtain financing if our actual costs are higher than projected or our
contemplated future revenues fall below our current expectations, in order
to
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finance
more rapid expansion,
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increase
marketing and sales,
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develop
new or enhanced technology,
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respond
to competitive pressures,
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establish
strategic relationships, and/or
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provide
for working capital.
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If
we
raise such financing by issuing equity or convertible debt securities, the
percentage ownership of our stockholders will be diluted. Any new debt or equity
securities could have rights, preferences and privileges senior to rights of
our
common stock holders. We currently have no commitments for any such financing
and, accordingly, cannot assure you that such financing will be available when
and to the extent required or that, if available, it will be on terms acceptable
to us. If adequate financing is not available on acceptable terms, we may be
unable to finance the activities referred to above. In such event, our business
may be adversely affected.
Recently
enacted and proposed changes in securities laws and regulations will increase
our costs. The Sarbanes-Oxley Act of 2002 that became law in July 2002 has
required and will continue to require changes in some of our corporate
governance practices. We expect that the Sarbanes-Oxley Act will increase our
legal and financial compliance costs, and make some activities more difficult,
time consuming and/or more costly. We also expect that the Sarbanes-Oxley Act
will make it more costly to obtain director and officer liability insurance
coverage, and we may be required to accept reduced coverage or incur
substantially higher costs to obtain it. We currently do not have this coverage.
These new rules and regulations could also make it more difficult for us to
attract and retain qualified members of our board of directors, particularly
to
serve on our audit committee, and qualified executive officers. In accordance
with the Sarbanes-Oxley Act, we have instituted a number of changes relating
to
corporate governance practices including the certification of our consolidated
financial statements pursuant to Sections 302 and 906 of the Sarbanes-Oxley
Act
and adoption of certain internal controls. The Sarbanes-Oxley Act has provisions
that have implementation deadlines, including those related to Section 404
concerning internal control procedures. Implementation of those procedures
will
require resources and a portion of our management’s time and
efforts.
Our
reported financial results may be adversely affected by changes in accounting
principles generally accepted in the United States.
We
prepare our financial statements in conformity with accounting principles
generally accepted in the United States. These accounting principles are subject
to interpretation by the Financial Accounting Standards Board, the American
Institute of Certified Public Accountants, the SEC and various bodies formed
to
interpret and create appropriate accounting policies. A change in these policies
or interpretations could have a significant effect on our reported financial
results, and could affect the reporting of transactions completed before the
announcement of a change. For example, while current accounting rules allow
us
to exclude the expense of employee stock options from our financial statements,
influential business policy groups, including the Financial Accounting Standards
Board, have suggested that the rules be changed to require these options to
be
expensed.
Due
to
the change in business activities of the Company in conjunction with the change
in control, we are no longer able to realize any benefit from net operating
losses carried forward of CNE Group, Inc. of approximately $30,000,000. The
Company currently has net operating losses of approximately $185,000 related
to
development stage activity, which may be carried forward to future
periods.
Companies
generally, and our Company, specifically, rely heavily on stock options as
a
major component of our employee compensation packages. If we are required to
expense options granted to our officers and employees, although our cash
position would not be affected, our income from continuing operations and our
stockholders’ equity would decrease and our stock price could be adversely
affected. In such event, we may have to decrease or eliminate option grants
to
our officers and employees, which could negatively impact our ability to attract
and retain qualified employees and executive personnel. While the Company does
not currently have a stock option plan, such a plan may be established in the
future.
In
general, for purposes of the Code, an ownership change occurs when 5% or more
owners increase their ownership percentage by more than 50% over the lowest
percentage owned by those owners at any time during a testing period, which
is
generally the three years prior to the increase in ownership by 5% or more
owners. The IRS has authority to treat warrants, options, contracts to acquire
stock, convertible debt interests and other similar interests as if they are
stock and stock as if it is not stock. In any event, it is possible that past
and/or future transactions affecting our equity could create an ownership change
and trigger this limitation on the use of our net operating loss.
RISKS
RELATED TO OUR BUSINESS
Our
business faces intense competition. If we fail to adequately meet this
competition, our business could be adversely affected.
Most
of
our competitors have substantially greater financial, technical and marketing
resources; longer operating histories and greater name recognition to apply
to
each of these factors, and in some cases have built significant reputations
with
the customer base in the markets in which we compete. If we are unable to
successfully compete, our business, financial condition, and operating results
could be materially and adversely affected.
Because
we have fixed costs, any decline in our revenues could disproportionately and
adversely affect our financial condition and operating results.
Significant
portions of our costs are fixed, due in part to our fixed sales, engineering
and
product support, and manufacturing facilities. As a result, relatively small
declines in revenue could disproportionately affect our operating results.
Changes in product demand, among other things, could adversely affect our
manufacturing capacity, which would adversely affect our business.
Our
business may suffer if we lose the services of our executive officers, or if
we
cannot recruit and retain additional skilled personnel.
We
depend
on the continued services and performance of Peter Frugone, our Chairman and
Chief Executive Officer, Rudolph Karundeng, one of our Directors, as well as
Senior Advisor, Hans Karundeng and his subsidiary operations for our future
success. If either Mr. Frugone or Mr. Rudolph Karundeng becomes unable
or unwilling to continue in his current position, our business and financial
conditions could be damaged. We are not the beneficiaries of any key person
life
insurance covering them or any other executive.
RISKS
RELATED TO THE OWNERSHIP OF OUR COMMON STOCK
Your
ability to sell any common stock may be restricted, because there is a limited
trading market for these securities.
Although
our common stock is currently traded on the NASD OTC Bulletin Board, a liquid
market in our stock has been sporadic. Accordingly, you may not be able to
sell
shares of our common stock when you want or at the price you want, if at
all.
In
addition, depending on several factors including, among others, the future
market price of our common stock, these securities are subject to the so-called
“penny stock” rules that impose additional sales practice and market making
requirements on broker-dealers who sell and/or make a market in such securities.
These factors could affect the ability or willingness of broker-dealers to
sell
and/or make a market in our common stock and the ability of purchasers of our
common stock to sell their shares in the secondary market. A delisting could
also negatively affect our ability to raise capital in the future.
The
market price of our common stock may be volatile, which could adversely affect
the value of any common stock that you may own.
The
market price of our common stock may fluctuate significantly in response to
the
following factors:
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variations
in our quarterly operating results;
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our
announcements of significant contracts, milestones or
acquisitions;
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our
relationships with other companies;
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our
ability to obtain capital
commitments;
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additions
or departures of our key personnel;
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sales
of our common stock by others or termination of stock transfer
restrictions;
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changes
in estimates of our financial condition by securities analysts;
and
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fluctuations
in stock market price and volume.
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The
last
three factors are beyond our control.
In
the
past, following periods of volatility in the market price of a company’s
securities, securities class action litigation often has been instituted against
that company. Such litigation is expensive and diverts management’s attention
and resources. Any one of the factors noted above could have an adverse affect
on the value of our common stock.
Anti-takeover
provisions of the Delaware General Corporation Law and in our Certificate of
Incorporation could discourage a merger or other type of corporate
reorganization or a change in control, even if it could be favorable to the
interests of our stockholders.
The
Delaware General Corporation Law and our Certificate of Incorporation contain
provisions that may enable our management to retain control and resist a
takeover of our Company. These provisions generally prevent us from engaging
in
a broad range of business combinations with an owner of 15%, 20% in the case
of
our Certificate of Incorporation, or more of our outstanding voting stock for
a
period of three years from the date that this person acquires his stock. Our
Certificate of Incorporation and our By Laws also require the affirmative vote
of at least 60% or our voting stockholders to effect certain actions, including,
under certain circumstances, the removal of directors, and provide for the
election of different classes of directors with the term of each class ending
at
different times. Accordingly, these provisions could discourage or make more
difficult a change in control or a merger or other type of corporate
reorganization even if it could be favorable to the interests of our
stockholders.
Our
officers and directors exercise significant control over our affairs, which
could result in their taking actions that other stockholders do not approve
of.
Our
executive officers and directors, and persons or entities affiliated with them,
currently control approximately 18% of our outstanding common stock. These
stockholders, if they act together, may be able to exercise substantial
influence over all matters requiring approval by our stockholders, including
the
election of directors and approval of significant corporate transactions. This
concentration of ownership may also delay or prevent a change in control of
our
Company and might affect the market price of our common stock.
We
have
never paid any cash dividends on our common stock and currently intend to retain
all future earnings, if any, to invest in our business.
If
our
Board issues common stock, which it can do without stockholder approval, a
purchaser of our common stock could experience substantial
dilution.
Our
Board
of Directors has the authority to issue up to 1 billion shares of common stock
and 10,000,000 shares of preferred stock and to issue options and warrants
to
purchase shares of our common stock without stockholder approval. In the future,
we could issue additional shares of our common stock at values substantially
below the current market price for our common stock, which could substantially
dilute the equity ownership of holders of our common stock. In addition, our
Board could issue large blocks of our common stock to prevent unwanted tender
offers or hostile takeovers without any stockholder approval. Our ability to
issue preferred stock may adversely affect the rights of common stockholders
and
be used as an anti-takeover device.
Our
Certificate of Incorporation authorizes our Board of Directors to issue up
to
10 million shares of preferred stock without approval from our
stockholders. Accordingly, all of our common stock will be junior to any
preferred stock issued by us, and our Board has the right, without the approval
of common stockholders, to fix the relative rights and preferences of such
preferred stock. This could affect the rights of common stockholders regarding,
among other things, voting, dividends and liquidation. We could also use an
issuance of preferred stock to deter or delay a change in control that may
be
opposed by our management, even if the transaction might be favorable to the
common stockholders.
The
Company might issue options and warrants in the future. The exercise of all
of
the outstanding options and warrants would dilute the then-existing
stockholders’ percentage ownership of our common stock. Any sales resulting from
the exercise of options and warrants in the public market, such as sales by
the
selling stockholders pursuant to this prospectus, could adversely affect
prevailing market prices for our common stock. Moreover, our ability to obtain
additional equity capital could be adversely affected since the holders of
outstanding options and warrants may exercise them at a time when we would
also
wish to enter the market to obtain capital on terms more favorable than those
provided by such options and warrants. We lack control over the timing of any
exercise or the number of shares issued or sold if exercises occur.
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Item 2.
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Description
of NYC Office.
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Our
executive offices are located at Carnegie Hall Tower, 152 W. 57th Street,
27th
Floor,New York, NY 10019 where we use office space, on a temporary basis, under
a management agreement with Empire Advisory, LLC.
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Item 3.
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Legal
Proceedings
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The
Company was a party to a lawsuit where the plaintiff alleged that he was
entitled to $60,000 and 1,300,000 of common stock based upon CNE’s failure
to compensate him for services related to identifying financing for CNE,
based upon an agreement that was entered into between CNE and the plaintiff
in
April 2005. On November 28, 2007, the Company settled the lawsuit with the
plaintiff. In full and final settlement of the claims asserted in the action,
the Company has paid the plaintiff $10,000 in cash and issued the plaintiff
200,000 shares of the Company’s common stock having a fair value of $12,000,
based on the public traded share price on December 21, 2007. The settlement
resulted in a loss on debt conversion of $2,000 during the year ended December
31, 2007 because an estimated liability had been recognized prior to 2007.
In
May
2006, the Company was advised that they were in default of a settlement
agreement entered into in January of 2005 by CNE related to the release of
unrestricted, freely-tradable, non-legend shares of stock. In August 2006,
the
plaintiffs alleging the default obtained a judgment in the 17th Judicial Circuit
Court Broward County, Florida for approximately $1,000,000. On November 13,
2007, legal counsel engaged by Management brought a countersuit against the
plaintiffs alleging that the judgment obtained in that court was fraudulent
based on the plaintiffs’ perjury. The Company and its counsel strongly feel that
the plaintiffs’ claims against the Company have no merit, the likelihood of an
unfavorable outcome is very low, and is prepared to vigorously defend the
matter.
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Item 4.
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Submission
of Matters to a Vote of
Security-Holders.
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On
November 20, 2007, the Board of Directors approved a private placement offering
(the "Offering") approximating $2,000,000 to accredited investors at $1.00
per
share of Series A Convertible Preferred Stock. The Offering will consist of
the
Company's Series A Convertible Preferred Stock that will be convertible into
our
common stock. These securities are not required to be and will not be registered
under the Securities Act of 1933. Shares issued under this placement will not
be
sold in the United States, absent registration or an applicable exemption from
registration. As of December 31, 2007, the Company has received $280,000 from
investors towards 280,000 Series A Convertible Preferred Stock shares issuable
under subscription agreements covering the placement offering. Each Series
A
Convertible Preferred Stock is convertible into 20 shares of the Company’s
Common Stock. The holders of the preferred stock have no voting rights except
as
may be required by Delaware law, no redemption rights, and no liquidation
preferences over the Common Stock holders.
On
December 3, 2007, the Board of Directors approved a plan to compensate all
members of the Board of Directors at a rate of $50,000 per year and 250,000
shares of Company common stock effective January 1, 2007. This compensation
plan
applies to any board member that belonged to the Board as of and subsequent
to
January 1, 2007. Those board members that were only on the Board for part of
the
year will received pro-rata compensation based on length of service. As of
December 31, 2007, none of the shares under this plan have been issued and
the
Company has accrued $200,137 of cash and recorded additional paid-in capital
of
$60,041 for stock compensation based on the fair value of 1,000,685 shares
to be
issued to the members of the Board.
PART
II
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Item 1.
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Market
For Common Equity and Related Stockholder
Matters.
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Exchange
Listing:
Our
common stock is listed on the NASD OTC: Bulletin Board (trading symbol ARWD.OB).
The number of record holders of our common stock as of March 18, 2008 was
approximately 311.
Equity
Sale Prices:
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Common
Stock
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High Sales
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Low Sales
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Price
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Price
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2007
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1st
Quarter
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0.21
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0.14
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2nd
Quarter
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0.14
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0.07
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3rd
Quarter
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0.10
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0.06
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4th
Quarter
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0.07
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0.04
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2006
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1st
Quarter
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0.51
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0.28
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2nd
Quarter
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0.49
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0.18
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3rd
Quarter
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0.26
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0.06
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4th
Quarter
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0.33
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0.07
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The
number of freely tradable shares not held by affiliates is 17,254,089.
As
of
April 10, 2008, the aggregate market value of voting stock held by
non-affiliates of the Issuer was approximately $1,035,245.
Dividends:
We
have
not previously paid cash dividends on our common stock. The payments of future
dividends and the amount thereof will depend upon our earnings, financial
condition, capital requirements and such other factors as our Board of Directors
may consider relevant.
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Item 2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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GENERAL
We
are a
holding company whose only operating subsidiary as of December 31, 2006 is
Arrow
Ltd. The principal business of Arrow is to provide marketing, sales,
distribution, corporate operations and corporate finance services for the
commercial exploitation of natural resources around the world. Prior to November
2005, we used to be a telecommunications and recruiting company formally known
as CNE Group, Inc. The company elected to shift its business focus to the
worldwide commercial exploitation of natural resources.
ARROW
RESOURCES DEVELOPMENT, LTD.
In
August
2005, Arrow entered into an Agreement and Plan of Merger (“the Agreement”) with
its wholly-owned subsidiary, Arrow Ltd., in which Arrow (formerly CNE) was
required to issue 10 million shares of Series AAA convertible preferred
stock (“the Preferred Stock”) to Arrow Ltd.’s designees, representing 96% of all
outstanding equity of CNE on a fully diluted basis in exchange for the Marketing
and Distribution Agreement provided to the Company by Arrow. Under the
Agreement, the Company discontinued all former operations (CareerEngine, Inc.,
SRC and US Commlink) and changed its name to Arrow Resources Development,
Inc.
On
August 1, 2005, Arrow Ltd. entered into the Marketing Agreement with Arrow
Pte. and its subsidiaries in consideration for Arrow issuing a non-interest
bearing note (the “Note”) in the principal amount of $125,000,000 to Empire
Advisory, LLC, (“Empire”), acting as agent, due on or before December 31,
2005. Empire is Arrow Pte.’s merchant banker. The Note permitted the Company, as
Arrow’s sole stockholder, to cause Arrow to repay the Note in cash or with
10,000,000 shares of the Company’s non-voting Series AAA Preferred Stock.
However, in December 2007, Arrow Pte. assessed that it would be unable to
harvest the timber products in Papua, New Guinea due to the fact that the widely
accepted international guidelines of the World Wildlife Federation had not
been
adopted by Papua, New Guinea.
This
fact
is adverse to the economic, social and environmental goals of Arrow Pte. because
with the amount of land that the project was allotted combined with the agreed
upon previous guidelines of the marketing and distribution agreement, yields
would be significantly reduced. Given the significant change in the economics
of
the harvesting of the timber in Papua, New Guinea, Arrow Pte. has decided not
to
pursue any further operations in Papua, New Guinea given that the above
restrictions cause a significant reduction in the volume of harvesting, which
results in a disproportionate cost to yield ration at the Papua, New Guinea
site
which makes the project not economically feasible in the foreseeable
future.
Based
on
the fact that Arrow Pte. is unable to fulfill their part of the agreement,
the
Company has reached the conclusion that the marketing and distribution agreement
has no value. Therefore, the Company has fully impaired the value of the
agreement and recorded a loss on write-off of the marketing and distribution
agreement of $125,000,000 at December 31, 2007. (See Note 6.)
On
April
4, 2006 Arrow Resource Development Ltd. (the Company’s Bermuda subsidiary)
entered into an agency agreement with APR in which the Company will provide
financial consultancy services to APR for an annual fee, payable as collected,
equal to 10% of APR’s gross revenue payable commencing upon execution. This
agreement provides for the company to collect all revenues from all operations,
retain its 10% fee and disperse the remaining 90% to APR and its subsidiaries.
The term of the agreement is effective upon execution, shall remain in effect
for ninety-nine (99) years and shall not be terminated until the expiration
of
at least ten (10) years. As of December 31, 2007, the Company has not recovered
any revenue from this agreement.
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
The
preparation of financial statements in accordance with U.S. generally accepted
accounting principles requires us to make estimates and assumptions that affect
the reported amounts of assets and liabilities at the date of the financial
statements and the reported amounts of net revenue and expenses during the
reporting period. On an ongoing basis, we evaluate our estimates, including
those related to our allowance for doubtful accounts, inventory reserves, and
goodwill and purchased intangible asset valuations, and asset impairments.
We
base our estimates on historical experience and on various other assumptions
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting
policies, among others, affect the significant judgments and estimates we use
in
the preparation of our consolidated financial statements.
ALLOWANCE
FOR DOUBTFUL ACCOUNTS, REVENUE RECOGNITION
We
evaluate the collectibility of our accounts receivable based on a combination
of
factors. In circumstances where we are aware of a specific customer’s inability
to meet its financial obligations to us, we record a specific allowance to
reduce the net receivable to the amount we reasonably believe will be collected.
For all other customers, we record allowances for doubtful accounts based on
the
length of time the receivables are past due, the prevailing business environment
and our historical experience. If the financial condition of our customers
were
to deteriorate or if economic conditions were to worsen, additional allowances
may be required in the future.
We
recognize product revenue when persuasive evidence of an arrangement exists,
the
sales price is fixed, the service is performed or products are shipped to
customers, which is when title and risk of loss transfers to the customers,
and
collectibility is reasonably assured.
VALUATION
OF GOODWILL, PURCHASED INTANGIBLE ASSETS AND LONG-LIVED
ASSETS
The
Company’s only intangible asset was comprised of a marketing and distribution
agreement with Arrow Pte. In accordance with SFAS 142, “Goodwill and Other
Intangible Assets” this intangible agreement is no longer amortized; instead the
intangible is tested for impairment on an annual basis. The Company assesses
the
impairment of identifiable intangibles and goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment
review include the following:
·
Significant
inability to achieve expected projected future operating results;
·
Significant
changes in the manner in which the work is able to be performed what increases
costs;
·
Significant
negative impact on the environment.
We
perform goodwill impairment tests on an annual basis and on an interim basis
if
an event or circumstance indicates that it is more likely than not that
impairment has occurred. We assess the impairment of other amortizable
intangible assets and long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important that could trigger an impairment review include
significant underperformance to historical or projected operating results,
substantial changes in our business strategy and significant negative industry
or economic trends. If such indicators are present, we evaluate the fair
value
of the goodwill. For other intangible assets and long-lived assets we determine
whether the sum of the estimated undiscounted cash flows attributable to
the
assets in question is less than their caring value. If less, we recognize
an
impairment loss based on the excess of the carrying amount of the assets
over
their respective fair values.
Fair
value of goodwill is determined by using a valuation model based on market
capitalization. Fair value of other intangible assets and long-lived assets
is
determined by future cash flows, appraisals or other methods. If the long-lived
asset determined to be impaired is to be held and used, we recognize an
impairment charge to the extent the anticipated net cash flows attributable
to
the asset are less than the asset’s carrying value. The fair value of the
long-lived asset then becomes the asset’s new carrying value, which we
depreciate over the remaining estimated useful life of the asset.
RECENT
ACCOUNTING PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. SFAS
No.160 requires that the ownership interests in subsidiaries held by parties
other than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, in the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest on the face of the consolidated statement of income, and that Entities
provide sufficient disclosures that clearly identify and distinguish between
the
interests of the parent and the interests of the noncontrolling owners.
SFAS No.160 is effective for fiscal years, beginning on or after December 15,
2008 and cannot be applied earlier.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No.
141(revised 2007), “Business Combinations,” (“FASB 141R”). This standard
requires that entities recognize the assets acquired, liabilities assumed,
contractual contingencies and contingent consideration measured at their fair
value at the acquisition date for any business combination consummated after
the
effective date. It further requires that acquisition-related costs are to be
recognized separately from the acquisition and expensed as incurred. FASB 141R
is effective for fiscal years beginning after December 15, 2008.
The
Company does not anticipate that the adoption of SFAS No. 141R and No. 160
will
have an impact on the Company's overall results of operations or financial
position, unless the Company makes a business acquisition in which there is
a
noncontrolling interest.
In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of
Share Options” (“SAB 110”). SAB 110 expresses the current view of the staff that
it will accept a company’s election to use the simplified method discussed in
Staff Accounting Bulletin 107, Share
Based Payment,
(“SAB
107”), for estimating the expected term of “plain vanilla” share options
regardless of whether the company has sufficient information to make more
refined estimates. SAB 110 became effective for the Company on January 1, 2008.
The adoption of SAB 110 is not expected to have a material impact on the
Company’s financial position.
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No.159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No.115”. SFAS No.159 permits entities
to choose to measure eligible financial instruments and other items at fair
value at specified election dates. A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected
in
earnings at each subsequent reporting date. The fair value option may be applied
instrument by instrument but only upon the entire instrument - not portions
of
the instrument. Unless a new election date occurs, the fair value option is
irrevocable. SFAS No.159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. The Company does not expect
that the adoption of SFAS No. 159 will have a material effect on the Company's
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
statement standardizes the definition of fair value, establishes a framework
for
measuring in generally accepted accounting principles and sets forth the
disclosures about fair value measurements. SFAS No. 157 is effective for
the beginning of an entity's fiscal year that begins after November 15, 2007.
The Company does not expect SFAS No. 157 will have a material effect on its
financial statements.
RESULTS
OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2007
In
November 2005, we discontinued and disposed of our subsidiaries except for
Arrow
Ltd. in conjunction with the recapitalization of the Company. The Company had
no
revenue during this period as Arrow Ltd. is still in the development stage.
For
the year ended December 31, 2007 we incurred consulting fees of $3,541,850
of which, $3,358,386 was related to services provided by the Management
Agreement with Empire under which Empire provides the services of Chief
Executive Officer and administrative services to the Company and consulting
services provided by Hans Karundeng and Rudolph Karundeng under Engagement
and
Consulting Agreements. For the year ended December 31, 2006, we incurred
consulting fees of $3,391,129 of which, $3,257,683 was related to services
provided by the Management Agreement with Empire under which Empire provides
the
services of Chief Executive Officer and administrative services to the Company
and consulting services provided by Hans Karundeng and Rudolph Karundeng under
Engagement and Consulting Agreements.
REVENUES
There
was
no revenue for the years ended December 31, 2007 and 2006 as the Company is
in its development stage.
COST
OF GOODS SOLD
There
was
no cost of good sold for the year ended December 31, 2007 and 2006 as the
Company is in its development stage.
OTHER
EXPENSES
Compensation,
consulting and related costs increased to $3,541,850 for the year December
31,2007 as compared to $4,413,216 for period from inception (November 15, 2005)
to December 31, 2006 and $7,955,066 for the period from inception (November
15,
2005) to December 31, 2007. The increase was mostly due to consulting fees
for
services provided by the Management Agreement with Empire under which Empire
provides the services of Chief Executive Officer and administrative services
to
the Company and consulting services provided by Hans Karundeng and Rudolph
Karundeng under Engagement and Consulting Agreements.
General
and administrative expenses decreased to $161,624 for the year ended December
31, 2007 as compared to $392,553 for the period from inception (November 15,
2005) to December 31, 2006 and $554,177 for the period from inception (November
15, 2005) to December 31, 2007. This was primarily due to a decrease in legal
and a reduction in operating expenses.
Directors’
compensation increased to $260,178 for the year ended December 31, 2007 as
compared to none for the period from inception (November 15, 2005) to December
31, 2006. The increase was due to a December 3, 2007 resolution to compensate
all members of the Board of Directors on an annualized basis of $50,000 and
250,000 shares in the Company’s common stock, effective January 1,
2007.
Delaware
franchise taxes amount to $57,652 for the year ended December 31, 2007 compared
to $127,349 for the period from inception (November 15, 2005) to December 31,
2006 and $185,001 for the period from inception (November 15, 2005) to December
31, 2007. The Company is delinquent in its filing and payment of the Delaware
Franchise Tax report and, accordingly, is not in good standing. At December
31,
2007, the Company has estimated unpaid Delaware franchise taxes for the years
ended December 31, 2007, December 31, 2006 and 2005 in the amount of $57,652,
$57,650 and $69,699, respectively. The Company did not file their tax returns
on
time due to an administrative oversight. The Company will file the delinquent
tax returns in the second
quarter of 2008 and
pay
the amount owed in full during the fourth quarter of 2008.
Total
operating expenses during the development stage decreased to $4,021,304 for
the
year ended December 31, 2007 as compared to $4,933,118 for the period from
inception (November 15, 2005) to December 31, 2006 and $8,954,422 for the period
from inception (November 15, 2005) to December 31, 2007.
In
December 2007, Arrow Pte. assessed that it would be unable to harvest the timber
products in Papua, New Guinea due to the fact that the widely accepted
international guidelines of the World Wildlife Federation had not been adopted
by Papua, New Guinea. This fact is adverse to the economic, social and
environmental goals of Arrow Pte. because with the amount of land that the
project was allotted combined with the agreed upon previous guidelines of the
marketing and distribution agreement, yields would be significantly reduced.
Given the significant change in the economics of the harvesting of the timber
in
Papua, New Guinea, Arrow Pte. has decided not to pursue any further operations
in Papua, New Guinea given that the above restrictions cause a significant
reduction in the volume of harvesting, which results in a disproportionate
cost
to yield ration at the Papua, New Guinea site which makes the project not
economically feasible in the foreseeable future. Based on the fact that Arrow
Pte. is unable to fulfill their part of the agreement, the Company has reached
the conclusion that the marketing and distribution agreement has no value.
Therefore, the Company has fully impaired the value of the agreement and
recorded a loss on write-off of the marketing and distribution agreement of
$125,000,000 at December 31, 2007. (See Note 6.)
The
Company was a party to a lawsuit where the plaintiff alleged that he was
entitled to $60,000 and 1,300,000 of common stock based upon CNE’s failure
to compensate him for services related to identifying financing for CNE,
based upon an agreement that was entered into between CNE and the plaintiff
in
April 2005. On November 28, 2007, the Company settled the lawsuit with the
plaintiff. In full and final settlement of the claims asserted in the action,
the Company has paid the plaintiff $10,000 in cash and issued the plaintiff
200,000 shares of the Company’s common stock having a fair value of $12,000,
based on the public traded share price on December 21, 2007. The settlement
resulted in a loss on debt conversion of $2,000 during the year ended December
31, 2007 because an estimated liability had been recognized prior to 2007.
(See
Item 3. Legal Proceedings and Note 11 - Commitments and Other Matters.)
At
December 31, 2006, the Company wrote off liabilities associated with CNE, the
predecessor entity, which will not be paid. The total amounted to $395,667
and
was recorded as a reduction to accrued expenses. This resulted in the
recognition of a gain for the same amount.
LIQUIDITY
AND CAPITAL RESOURCES
In
November 2005, we discontinued and disposed of our subsidiaries except for
Arrow
Ltd. in conjunction with the recapitalization of the Company. The Company was
recapitalized by the conversion of $125,000,000 preferred convertible note
related to the purchase of the Marketing Agreement. As part of the
recapitalization plan, the Company settled all outstanding debt except for
$220,000. As of December 31, 2007 and December 31, 2006 the Company had
$1,040 and $0 of cash, respectively. We had losses of approximately $129,023,304
for the year ended December 31, 2007 and do not currently generate any revenue.
We had losses of approximately $3,514,000 for the year ended December 31, 2006
and did not generate any revenue for that year. In order for us to survive
the
next twelve months we will need to secure approximately $1,500,000 of debt
or
equity financing. We expect to secure the additional financing in the future
but
there can be no guarantee that we will be successful.
Off-Balance
Sheet Arrangements
At
December 31, 2007, we had no off-balance sheet arrangements.
Year
ended December 31, 2007 compared to the Year ended December 31,
2006.
Operating
Activities
We
used
$2,597,391 of cash in our operating activities during the year ended December
31, 2007. We had a net loss of $129,023,304 which was offset by the write down
of the marketing and distribution agreement for $125,000,000. We had an increase
in stock-based directors’ compensation to be issued of $60,041, accounts payable
and accrued expenses payable of $1,365,872 mostly related to compensation and
management fees. In addition, we had a working capital deficiency of $8,733,265
during the period ended December 31, 2007. We did not have any material
commitments for capital expenditures as of December 31, 2007.
INFLATION
We
believe that inflation does not significantly impact our current
operations.
RECENT
TRANSACTIONS
On
August
2, 2006, the Company entered into a stock purchase agreement with APR wherein
APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common
stock in the Company for $1.00 per share, making this a capital contribution
of
$15,000,000 in total. The stock will be delivered at the time the Company files
for registration. During the third and fourth quarters of 2006, the Company
received a total of $985,000 in capital contribution towards the stock purchase
agreement with APR to purchase up to an aggregate amount of 15,000,000 shares
of
common stock in the Company for $1.00 per share. During
the year ended December 31, 2007, the Company received an additional $500,000
in
capital contribution towards the stock purchase agreement with APR to purchase
up to an aggregate amount of 15,000,000 shares of common stock in the Company
for $1.00 per share.
On
November 20, 2007, the Board of Directors approved a private placement offering
(the "Offering") approximating $2,000,000 to accredited investors at $1.00
per
share of Series A Convertible Preferred Stock. The Offering will consist of
the
Company's Series A Convertible Preferred Stock that will be convertible into
our
common stock. These securities are not required to be and will not be registered
under the Securities Act of 1933. Shares issued under this placement will not
be
sold in the United States, absent registration or an applicable exemption from
registration. As of December 31, 2007, the Company has received $280,000 from
investors towards 280,000 Series A Convertible Preferred Stock shares issuable
under subscription agreements covering the placement offering. Each Series
A
Convertible Preferred Stock is convertible into 20 shares of the Company’s
Common Stock. The holders of the preferred stock have no voting rights except
as
may be required by Delaware law, no redemption rights, and no liquidation
preferences over the Common Stock holders.
On
December 3, 2007, the Board of Directors approved a plan to compensate all
members of the Board of Directors at a rate of $50,000 per year and 250,000
shares of Company common stock effective January 1, 2007. This compensation
plan
applies to any board member that belonged to the Board as of and subsequent
to
January 1, 2007. Those board members that were only on the Board for part of
the
year will received pro-rata compensation based on length of service. As of
December 31, 2007, none of the shares under this plan have been issued and
the
Company has accrued $200,137 of cash and recorded additional paid-in capital
of
$60,041 for stock compensation based on the fair value of 1,000,685 shares
to be
issued to the members of the Board.
MANAGEMENT
The
Company has brought together a team of management and professionals with a
balance of experience in the fields plantation management, corporate finance,
corporate management and governance, marketing and sales, law, accounting and
international marketing. The team includes directors and advisors (Hans
Karundeng and Rudolph Karundeng) who are both members of the Company team and
senior management of APR.
CEO-President,
Chairman and Director - Peter J. Frugone
In
addition to the traditional investment banking skills related to sourcing,
valuation and negotiation, Mr. Frugone, 58, has significant experience in
hands-on operating roles at the senior levels, as well as strategic and advisory
roles as director of and consultant to small-cap and mid-cap companies. He
has
overseen the processes of strategic planning and oversight, recruitment of
management executives, assisting with follow-on capital requirements, arranging
follow-on acquisitions, and assisting with realization of value through IPO,
public sale or sale or merger of the company. Mr. Frugone is experienced in
all phases of financial analysis, corporate re-engineering and restructuring,
information technology and Internet marketing, real estate financing and
development, and commercial/residential general
construction/management.
In
1991,
Mr. Frugone founded, and has since acted as the Managing Director of,
Empire Advisory LLC (formerly Electra Capital Corporation), and a boutique
consulting and investment bank specializing in small and medium sized
transactions ($1 million to $10 million). Empire has provided financial
consulting and investing banking services to over 300 clients, which has
resulted in the completion of more than 100 debt and equity placements with
a
total value of $250 million.
From
1972
until 1989 Mr. Frugone was the CEO of Citadel Construction and Financial
Corporations. He started Citadel as a small home improvement company and
expanded to all phases of general construction, project management, and real
estate development with 1988 annual sales of $25 million. During that period
Citadel completed development projects of $105 million and construction projects
of over $400 million. Mr. Frugone started his career as an executive
trainee with Marine Midland Bank in 1967, rising to the position of Corporate
Trust Officer in charge of bond and coupon auditing. From 1969 to 1971
Mr. Frugone was a “baby bond” trader for Merrill Lynch Pierce Fenner and
Smith, then with Loeb Rhodes and Company and with Pershing and
Company.
Director
- John E. McConnaughy, Jr.
John
E.
McConnaughy, Jr., 78, is Chairman and Chief Executive Officer of JEMC
Corporation, a personal holding company he founded in 1985. He was Chairman
and
CEO of Peabody International Corp. from 1969 and in addition Chairman and CEO
of
GEO International Corp. when it was spun off in 1981. He retired from the former
in February 1986 and the latter in October 1992.
At
the
start of his tenure with Peabody International Corp., the Company had sales
of
$23 million. During the next 11 years, he built sales to $85 million and ranked
8th of the Fortune 500 Companies in growth of earnings per share. He was named
outstanding Chief Executive Officer for the Environmental Control industry
for
the years 1975, 1976 and 1978 by Financial World magazine.
Prior
to
joining Peabody in 1969, Mr. McConnaughy served as Vice President of
European Consumer Products with the Singer Company. He was responsible for
operations in 16 countries and sales of $400 million. He had previously been
President of the Singer Company of Canada, Limited. Earlier, he held management
positions at Westinghouse Electric Corp. in its consumer group and portable
appliance divisions.
Mr. McConnaughy
served on the board of Fortune Natural Resources Corporation from 2000 through
January 30, 2004. On June 1, 2004, Fortune filed from protection under
Chapter 11 of the Federal Bankruptcy law in the United States Bankruptcy Court
for the Eastern District of Louisiana, Case No. 04-14112. The case is still
pending.
A
graduate of Denison University with a B.A. in Economics, Mr. McConnaughy
earned his M.B.A. in Marketing and Finance at Harvard’s Graduate School of
Business Administration. Mr. McConnaughy has been a Director of Oxigene,
Inc., Varsity Brands, Inc., Texstar Corporation, MAI Corporation, Pets Choice
Ltd., Akzona Corp., First Bank Corp. (New Haven), Beringer Co., Inc., the
Pullman Co., Moore McCormack Resources, Peabody International Corp., DeVlieg
Bullard, Inc., Mego Financial Corp., Trasact International, Inc. and
RateXchange, who changed their name to MCF Corporation. Mr. McConnaughy
currently serves on the boards of five other public companies (Wave Systems,
Inc., Allis-Chalmers Energy Inc., Overhill Farms inc., Consumer Portfolio
Services, Inc. and Levcor International, Inc.)
He
is
Chairman of the Board of Trustees and Executive Committee of the Strang Cancer
Prevention Center and is Chairman Emeritus of the Harlem School of the
Arts.
Director
(2005-February 28, 2007) - John W. Allen
John
W.
Allen, 69, is Chairman and CEO of Spring Investment Corporation an international
investment firm based in New York City. He is also Chairman and CEO of Greater
China Corporation, a U.S. public company with operations in Hong Kong and China.
He was a co-founder of Turtlesnap Ventures, Inc. a company which identifies
promising technology opportunities through its “Global Trends in Technology”
Symposia.
Mr. Allen
serves as a Director, Advisor or Trustee of the following non-profit
organizations: AIESEC Yale (formerly Chairman of the Board of AIESEC, U.S.),
the
Maryland Information Technology Center (MITC), George Soros’ International
Science Foundation (previously, Trustee of the Soros Open Society Institute)
and
the Chinese Cultural Foundation.
Mr. Allen
has well-established relationships at senior levels in corporate, financial,
technical and government organizations worldwide. Over the past 30 years he
has
been instrumental in starting, building and financing more than 50 companies
in
global markets. He has participated in numerous conferences as chairman or
speaker on international capital markets, private equity, venture capital,
education and philanthropy.
After
receiving his BA from Yale University, he attended law school and received
his
MBA from Harvard Business School. He assisted Professor George Cabot Lodge
in
developing case materials for Harvard Business School in Central America.
Mr. Allen began his financial career with the Bank of Boston where he
eventually ran the international investment subsidiary of the Bank, Boston
Overseas Financial Corporation. This entity held direct investments in more
than
30 countries. He was instrumental in starting eight new financial service
companies in Asia, Europe and Latin America. Several grew into multi-billion
dollar enterprises, including one, in Japan, with more than $20 billion in
assets.
He
left
Boston to join Schroder Bank and Trust Company as Assistant to James D.
Wolfensohn (recently President of the World Bank Group). At Schroder he was
responsible for various international money market, and investment banking
activities.
He
initiated a new leasing company in Brazil, managed the successful acquisition
of
a NYSE listed company, and helped start a money market advisory firm which
today
manages more than $30 billion.
Mr. Allen
left Schroder to become President of the International Securities Exchange
Corporation, an organization designed to link investment companies around the
world to provide research and trading capabilities for global investors. Upon
the death of ISEC’s Chairman, Mr. Allen liquidated his shares and formed
Spring Investment Corporation, a family-owned company through which he conducts
his on-going investment activities.
Director
(February 26, 2007 - October 15, 2007) - Robert A Levinson
Robert
A.
Levinson, 83, served as Chairman of the Board of Andrex Industries Corporation,
a company engaged in textile manufacturing and processing, from April 1979
to
May 1995. He has served as Chairman of the Board of Levcor International, a
public company engaged in several industry segments, since June of 1989. From
November of 1979 to July of 1986, he was President of Dillon Yarn Corporation,
a
texturizer of polyester filament yarn. From 1977 to December of 1987, Mr.
Levinson was Chairman of the Board of Directors of Sheldon Petroleum.
Levinson
was a member of the Board of Directors of the Brooklyn Museum from 1968 to
1994,
where he served as Chairman from 1972 to 1984. Mr. Levinson is a former Chairman
and member of the Advisory Board of The National Dance Institute, Chairman
Emeritus and member of the Board of The Harlem School of the Art, Vice Chairman
of the Board of Directors of the National Committee on United States-China
Relations, and is on the Advisory Committee of the Center for U.S.-China Arts
Exchange at Columbia University.
Mr.
Levinson is also on the Board of Overseers of the Hood Museum and Hopkins
Performing Arts Center at Dartmouth, and a member of the New York-Beijing Sister
City Advisory Committee and also serves as Chairman, President and CEO of
Carlyle Industries, Inc., a publicly-owned manufacturer of threads, buttons,
crafts, and gifts. He is also a member of the Advisory Board at the World Policy
Insitute at the New School and the Board of the National Academy of Design
Museum and School.
Mr.
Levinson graduated from Dartmouth with an A.B. degree in February of 1946 and
received an MBA from the Amos Tuck School at Dartmouth in September of the
same
year. He attended the London School of Economics and Political Science, where
he
did additional graduate work.
Director
- Rudolph Karundeng
Mr. Karundeng,
28, has assisted Hans Karundeng, helping start, maintain and oversee the
operations at a senior level of numerous projects throughout the world since
2000. His primary role in most of these projects was the acquisition of capital
through banking means as well as financial analysis of projects and transforming
their structure in order to be viable for funding by banks.
Since
receiving his degree in Economics from UCLA, Rudolph Karundeng has been Director
in numerous corporations throughout the world including Golden Summit Inc.
a
small-cap company lender and loan facilitator, Du Motier International
Corporation, a note structure developer as well as a bank loan facilitation
consultant. During his tenure as a Director for these companies he has been
involved in facilitating the loans for 25 Clients, which had a loan range from
$100 Million to $1.8 Billion for various projects including mining,
manufacturing, and marketing.
Mr. Karundeng
is intimately involved with all the processes, equipment, and day to day
operations of each project in order to better help in cost and budget analysis
for each project. Through his family’s earlier background of mining and forestry
he has developed a strong base of knowledge for the day-to-day operations as
well as development, marketing and all forms of operations for coal mining,
oil
refining, gas mining, and forestry. Another product of his tenure as Director
of
these companies is Mr. Karundeng’s has developed his knowledge in Note
Structures as well as the laws that pertain to them in many areas of the world
including but not limited to United States, Europe, China, Singapore, and
Indonesia. He has facilitated the sale, usage, and the acquisition of Notes
throughout the world utilizing his many banking relationships throughout the
world to assist companies in moving a project forward.
Director
- James L. Rothenberg
Mr.
Rothenberg is an attorney who is licensed to practice in the State of New
York. He is also licensed to practice before the federal courts in the
Southern and Eastern Districts of New York. Since 1990, Mr. Rothenberg has
served as a case consultant and expert witness in securities litigation and
arbitration, criminal defense and employment matters. He is also a
consultant and a lecturer in securities market structure, exchange specialists
and NASD market makers. From 1996 through 2003, Mr. Rothenberg served as
counsel to Bear Wagner Specialists LLC, members of the New York Stock
Exchange. He is currently a member of the Federal Regulation of Securities
Committee, Litigation Committee and Broker-Dealer Subcommittee. From 1970
through 1973, Mr. Rothenberg was employed by the Securities and Exchange
Commission as an enforcement attorney in Washington DC and from 1973 through
1975 he was Chief Counsel and Manager of the Market Surveillance Division of
the
New York Stock Exchange. From 1975 through 1985, Mr. Rothenberg was a
principal of Rothenberg Stuart Co., specialists on the New York Stock Exchange.
Senior
Advisor - Hans Karundeng
Mr. Hans
Karundeng, 57, has been involved in a wide variety of business ventures
throughout his life. His first business activity was operating a bakery which
supplied bread to the city as well as neighboring cities and to this day is
still well known throughout Java, Indonesia. After selling his shares in the
business, he became involved in Timber and timber related products with the
company that has now become one of the largest paper and paper related products
manufacturer and supplier in the world, Asian Pulp and Paper. Mr. Karundeng
during this time, opened a company named P.T. Akal Rasa, which helped develop
low-income housing for an underdeveloped area in Indonesia.
Mr. Karundeng
then moved on and started a mid cap firm that built, maintained and sold real
estate. A by-product of this company was starting a Corporation Consultant
company with a large Engineering consultant arm which later became the 4th
largest in Indonesia. During the time of this company, Mr. Hans Karundeng
acquired the licensing right to repair and maintain the turbines for select
Oil
companies in Indonesia, PLN (Electric company of Indonesia) and Telkom
(Tele-Communication company of Indonesia). Diversifying his portfolio he went
into Small saving and Loans, owning shares in a number of these
facilities.
Mr. Karundeng
has diversified his operations to include Sulfur Mining, Orange Plantation,
Shrimp Farming and Sand mining, as well as owning and operating an Air Cargo
company specializing in exporting Seafood to Japan and Hong Kong. During this
period he also had shares in a company that maintained 300,000 ha of Kasava
for
animal feed for exportation.
During
the time of the expansion of his holdings, Mr. Karundeng also went into
larger dealings on the international level. Helped obtain large quantities
of
Rice Donations to the Indonesian government from Thailand and Vietnam, and
paved
the way for larger loan from the World Bank for Indonesia to help the
underdeveloped areas of Indonesia.
After
leaving Indonesia he became involved in the opening of the Indonesian Exim
Bank
in NY, where he first started his international consultancy firm, which helped
his numerous clients achieve the level of competence in order to receive bank
loans either through corporate restructuring, cost analysis, or note
structuring.
|
Item 7.
|
Financial
Statements.
|
Our
financial statements to be filed hereunder follow, beginning with page
F-1.
|
Item 8.
|
Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
|
There
have been no disagreements concerning any matter of accounting principle or
financial statement disclosure between the Company and its independent auditor,
KBL LLP.
|
Item 8A.
|
Controls
and Procedures
|
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and acting Chief Financial Officer has
evaluated the effectiveness of the Company’s disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
the
fiscal period ending December 31, 2007 covered by this Annual Report
on Form 10-KSB. Based upon such evaluation, the Chief Executive Officer and
acting Chief Financial Officer has concluded that, as of the end of such period,
the Company’s disclosure controls and procedures were not effective as required
under Rules 13a-15(e) and 15d-15(e) under the Exchange Act. This conclusion
by
the Company’s Chief Executive Officer and acting Chief Financial
Officer does not relate to reporting periods after December 31,
2007.
Management’s
Report on Internal Control Over Financial Reporting
Management
is responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange
Act) of the Company. Internal control over financial reporting is a process
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes
in
accordance with accounting principles generally accepted in the United States
of
America.
The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable
assurance that transactions are recorded as necessary to permit preparation
of
financial statements in accordance with accounting principles generally accepted
in the United States of America, and that receipts and expenditures of the
Company are being made only in accordance with authorizations of management
and
directors of the Company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or disposition
of the Company’s assets that could have a material effect on the financial
statements.
Because
of its inherent limitations, internal control over financial reporting may
not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
Management,
under the supervision of the Company’s Chief Executive Officer and acting Chief
Financial Officer, conducted an evaluation of the effectiveness of internal
control over financial reporting based on the framework in Internal
Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Company’s internal control over financial reporting was not
effective as of December 31, 2007 under the criteria set forth in the
in Internal Control—Integrated Framework.
A
material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial
statements will not be prevented or detected on a timely
basis. Management has determined that material weaknesses exist
due to a lack of segregation of duties, resulting from the Company's limited
resources.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the SEC that permit us to provide
only management’s report in this Annual Report on Form 10-KSB.
Changes
in Internal Control Over Financial Reporting
No
change
in the Company’s internal control over financial reporting occurred during the
quarter ended December 31, 2007, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.
Part
III
|
Item 9.
|
Directors,
Executive Officers, Promoters and Control Persons; Compliance With
Section 16 (a) of the Exchange
Act.
|
The
directors and executive officers of the Company are set forth below. All
directors hold office until the next annual meeting of stockholders, or until
their death, resignation, retirement, removal, disqualification, and until
their
successors have been elected and qualified. Vacancies in the existing board
are
filled by a majority vote of the remaining directors.
The
directors and executive officers of the Registrant as of March 31, 2008 were
as
follows:
|
Name
and Address
|
|
Position
|
|
Tenure
|
|
Peter
J. Frugone
|
|
Chairman,
Chief Executive Officer
|
|
2005
to Present
|
|
124
West 79th Street, Apt 14B
|
|
and
Director
|
|
|
|
New
York, NY
|
|
|
|
|
| |
|
|
|
|
|
Rudolph
Karundeng
|
|
Director
|
|
2005
to Present
|
|
19
Taman Serasi
|
|
|
|
|
|
Botanic
Garden View #01-25
|
|
|
|
|
| |
|
|
|
|
|
John
E. McConnaughy Jr.
|
|
Director
|
|
2005
to Present
|
|
637
Valley Road
|
|
|
|
|
|
New
Canaan Ct.
|
|
|
|
|
| |
|
|
|
|
|
James
Rothenberg
|
|
Director
|
|
10/15/2007
|
|
152
W. 57th Street, 27th Floor,
|
|
|
|
to
|
|
New
York, NY 10019
|
|
|
|
Present
|
BUSINESS
EXPERIENCE
PETER
J.
FRUGONE. In addition to the traditional investment banking skills related to
sourcing, valuation and negotiation, Mr. Frugone, has significant
experience in hands-on operating roles at the senior levels, as well as
strategic and advisory roles as director of and consultant to small-cap and
mid-cap companies. He has overseen the processes of strategic planning and
oversight, recruitment of management executives, assisting with follow-on
capital requirements, arranging follow-on acquisitions, and assisting with
realization of value through IPO, public sale or sale or merger of the company.
Mr. Frugone is experienced in all phases of financial analysis, corporate
re-engineering and restructuring, information technology and Internet marketing,
real estate financing and development, and commercial/residential general
construction/management. In 1991, Mr. Frugone founded, and has since acted
as
the Managing Director of, Empire Advisory LLC (formerly Electra Capital
Corporation), a boutique consulting and investment bank specializing in small
and medium sized transactions ($1 million to $10 million). Empire has provided
financial consulting and investing banking services to over 300 clients which
has resulted in the completion of more than 100 debt and equity placements
with
a total value of $250 million. From 1972 until 1989 Mr. Frugone was the CEO
of
Citadel Construction and Financial Corporations. He started Citadel as a small
home improvement company and expanded to all phases of general construction,
project management, and real estate development with 1988 annual sales of $25
million. During that period Citadel completed development projects of $105
million and construction projects of over $400 million. Mr. Frugone started
his
career as an executive trainee with Marine Midland Bank in 1967, rising to
the
position of Corporate Trust Officer in charge of bond and coupon auditing.
From
1969 to 1971 Mr. Frugone was a "baby bond" trader for Merrill Lynch Pierce
Fenner and Smith, then with Loeb Rhodes and Company and with Pershing and
Company.
RUDOLPH
KARUNDENG. Mr. Karundeng has assisted Hans Karundeng, helping start,
maintain and oversee the operations at a senior level of numerous projects
throughout the world since 2000. His primary role in most of these projects
was
the acquisition of capital through banking means as well as financial analysis
of projects and transforming their structure in order to be viable for funding
by banks Since receiving his degree in Economics from UCLA, Rudolph Karundeng
has been Director in numerous corporations throughout the world including Golden
Summit Inc. a small-cap company lender and loan facilitator, Du Motier
International Corporation, a note structure developer as well as a bank loan
facilitation consultant. During his tenure as a Director for these companies
he
has been involved in facilitating the loans for 25 Clients, which had a loan
range from $100 Million to $1.8 Billion for various projects including mining,
manufacturing, and marketing. Mr. Karundeng is intimately involved with all
the processes, equipment, and day to day operations of each project in order
to
better help in cost and budget analysis for each project. Through his family’s
earlier background of mining and forestry he has developed a strong base of
knowledge for the day-to-day operations as well as development, marketing and
all forms of operations for coal mining, oil refining, gas mining, and forestry.
Another product of his tenure as Director of these companies is
Mr. Karundeng’s has developed his knowledge in Note Structures as well as
the laws that pertain to them in many areas of the world including but not
limited to United States, Europe, China, Singapore, and Indonesia. He has
facilitated the sale, usage, and the acquisition of Notes throughout the world
utilizing his many banking relationships throughout the world to assist
companies in moving a project forward.
JOHN
E.
MCCONNAUGHY, JR. Mr. McConnaughy is Chairman and Chief Executive Officer of
JEMC Corporation. He was Chairman and CEO of Peabody International Corp. from
1969 and in addition Chairman and CEO of GEO International Corp. when it was
spun off in 1981. He retired from the former in February 1986 and the latter
in
October 1992. Prior to joining Peabody in 1969, Mr. McConnaughy served as
Vice President of European Consumer Products with the Singer Company. He was
responsible for operations in 16 countries and sales of $400 million. He had
previously been President of the Singer Company of Canada, Limited. Earlier,
he
held management positions at Westinghouse Electric Corp. in its consumer group
and portable appliance divisions. Mr. McConnaughy currently serves on the boards
of five other public companies Allis-Chalmers Energy Inc.,(ASY,) Wave Systems
Corp. (WAVX), Arrow Resources Development, Inc, (OTC:BB ARWD) Levcor
International, Inc. (LEVC.OB) and Kinetitec Corporation. Mr. McConnaughy has
been a Director of Oxigene, Inc., Varsity Brands, Inc., Texstar Corporation,
MAI
Corporation, Pets Choice Ltd., Akzona Corp., First Bank Corp. (New Haven),
Beringer Co., Inc., the Pullman Co., Moore McCormack Resources, Peabody
International Corp., DeVlieg Bullard, Inc., Mego Financial Corp., Trasact
International, Inc. and RateXchange, who changed their name to MCF Corporation.
and Fortune Natural Resources Corporation from 2000 through January 30,
2004.
JAMES
L.
ROTHENBERG. Mr. Rothenberg is an attorney who is licensed to practice in the
State of New York. He is also licensed to practice before the federal
courts in the Southern and Eastern Districts of New York. Since 1990, Mr.
Rothenberg has served as a case consultant and expert witness in securities
litigation and arbitration, criminal defense and employment matters. He is
also a consultant and a lecturer in securities market structure, exchange
specialists and NASD market makers. From 1996 through 2003, Mr. Rothenberg
served as counsel to Bear Wagner Specialists LLC, members of the New York Stock
Exchange. He is currently a member of the Federal Regulation of Securities
Committee, Litigation Committee and Broker-Dealer Subcommittee. From 1970
through 1973, Mr. Rothenberg was employed by the Securities and Exchange
Commission as an enforcement attorney in Washington DC and from 1973 through
1975 he was Chief Counsel and Manager of the Market Surveillance Division of
the
New York Stock Exchange. From 1975 through 1985, Mr. Rothenberg was a
principal of Rothenberg Stuart Co., specialists on the New York Stock Exchange.
Director
(2005-February 28, 2007) - John W. Allen
John
W.
Allen, 68, is Chairman and CEO of Spring Investment Corporation an international
investment firm based in New York City. He is also Chairman and CEO of Greater
China Corporation, a U.S. public company with operations in Hong Kong and China.
He was a co-founder of Turtlesnap Ventures, Inc. a company which identifies
promising technology opportunities through its “Global Trends in Technology”
Symposia.
Mr. Allen
serves as a Director, Advisor or Trustee of the following non-profit
organizations: AIESEC Yale (formerly Chairman of the Board of AIESEC, U.S.),
the
Maryland Information Technology Center (MITC), George Soros’ International
Science Foundation (previously, Trustee of the Soros Open Society Institute)
and
the Chinese Cultural Foundation.
Mr. Allen
has well-established relationships at senior levels in corporate, financial,
technical and government organizations worldwide. Over the past 30 years he
has
been instrumental in starting, building and financing more than 50 companies
in
global markets. He has participated in numerous conferences as chairman or
speaker on international capital markets, private equity, venture capital,
education and philanthropy.
After
receiving his BA from Yale University, he attended law school and received
his
MBA from Harvard Business School. He assisted Professor George Cabot Lodge
in
developing case materials for Harvard Business School in Central America.
Mr. Allen began his financial career with the Bank of Boston where he
eventually ran the international investment subsidiary of the Bank, Boston
Overseas Financial Corporation. This entity held direct investments in more
than
30 countries. He was instrumental in starting eight new financial service
companies in Asia, Europe and Latin America. Several grew into multi-billion
dollar enterprises, including one, in Japan, with more than $20 billion in
assets.
He
left
Boston to join Schroder Bank and Trust Company as Assistant to James D.
Wolfensohn (recently President of the World Bank Group). At Schroder he was
responsible for various international money market, and investment banking
activities.
He
initiated a new leasing company in Brazil, managed the successful acquisition
of
a NYSE listed company, and helped start a money market advisory firm which
today
manages more than $30 billion.
Mr. Allen
left Schroder to become President of the International Securities Exchange
Corporation, an organization designed to link investment companies around the
world to provide research and trading capabilities for global investors. Upon
the death of ISEC’s Chairman, Mr. Allen liquidated his shares and formed
Spring Investment Corporation, a family-owned company through which he conducts
his on-going investment activities.
Director
(February 26, 2007 - October 15, 2007) - Robert A Levinson
Robert
A.
Levinson, 83, served as Chairman of the Board of Andrex Industries Corporation,
a company engaged in textile manufacturing and processing, from April 1979
to
May 1995. He has served as Chairman of the Board of Levcor International, a
public company engaged in several industry segments, since June of 1989. From
November of 1979 to July of 1986, he was President of Dillon Yarn Corporation,
a
texturizer of polyester filament yarn. From 1977 to December of 1987, Mr.
Levinson was Chairman of the Board of Directors of Sheldon Petroleum.
Levinson
was a member of the Board of Directors of the Brooklyn Museum from 1968 to
1994,
where he served as Chairman from 1972 to 1984. Mr. Levinson is a former Chairman
and member of the Advisory Board of The National Dance Institute, Chairman
Emeritus and member of the Board of The Harlem School of the Art, Vice Chairman
of the Board of Directors of the National Committee on United States-China
Relations, and is on the Advisory Committee of the Center for U.S.-China Arts
Exchange at Columbia University.
Mr.
Levinson is also on the Board of Overseers of the Hood Museum and Hopkins
Performing Arts Center at Dartmouth, and a member of the New York-Beijing Sister
City Advisory Committee and also serves as Chairman, President and CEO of
Carlyle Industries, Inc., a publicly-owned manufacturer of threads, buttons,
crafts, and gifts. He is also a member of the Advisory Board at the World Policy
Insitute at the New School and the Board of the National Academy of Design
Museum and School.
Mr.
Levinson graduated from Dartmouth with an A.B. degree in February of 1946 and
received an MBA from the Amos Tuck School at Dartmouth in September of the
same
year. He attended the London School of Economics and Political Science, where
he
did additional graduate work.
Audit
Committee Financial Expert
The
Board
of Directors has determined that Mr. McConnaughy is an “audit committee
financial expert” (as defined in Item 401(e)(2) of Regulation S-B).
Mr. McConnaughy is independent as that term is used in
Item 7(d)(3)(iv) of Schedule 14A under the Exchange Act.
Compliance
with Section 16 (a) of the Exchange Act.
Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires the Company’s
directors, executive officers and holders of more than 10% of the Common Stock
to file with the Securities and Exchange Commission initial reports of ownership
and reports of changes in ownership of the Common Stock. Based solely upon
a
review of Forms 3, 4 and 5 furnished to the Company with respect to the year
ended December 31, 2007, to the best of the Company’s knowledge, the
Company’s directors, executive officers and holders of more than 10% of its
Common Stock timely filed the reports required by
Section 16(a).
Code
of Ethics
The
Company has adopted a written Code of Ethics that applies to the Company’s
principal executive officer, principal financial officer, principal accounting
officer or controller and any persons performing similar functions. The Company
will provide a copy of its Code of Ethics to any person without charge upon
written request addressed to Arrow Resources Development, Inc. 152 W. 57th
Street, 27th Floor, New York, NY 10019, Attention: Shareholder
Relations.
|
Item 10.
|
Executive
Compensation.
|
The
following table sets forth the salaries of the Company’s executive officers for
the fiscal year ending December 31, 2007.
| |
|
|
|
Annual
Compensation
|
|
Long-Term
Compensation
|
|
|
|
Name
and Principal
Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Other
Annual Compensation ($)
|
|
Restricted
Stock Award(s)
($)
|
|
Number
of Restricted Stock Award(s)
|
|
Securities
Underlying Options/
SARs
(#)
|
|
LTIP
Payouts ($)
|
|
All
other Compensation ($)
|
|
|
Peter
J. Frugone
|
|
|
2007
|
(1)
|
$
|
-
|
|
$
|
-
|
|
$
|
50,000
|
|
$
|
-
|
|
|
|
|
|
-
|
|
$
|
-
|
|
$
|
15,000
|
(1)
|
|
Chairman,
CEO
and
Director
|
|
|
Prior
to 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rudolph
Karundeng
|
|
|
2007
|
(2)
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,000
|
(2)
|
|
Director
|
|
|
Prior
to 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
52,000,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
E.
McConnaughy,
Jr.
|
|
|
2007
|
(3)
|
|
-
|
|
|
-
|
|
|
50,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
15,000
|
(3)
|
|
Director
|
|
|
Prior
to 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,875,000
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James
Rothenberg
|
|
|
2007
|
(4)
|
|
-
|
|
|
-
|
|
|
10,548
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
3,164
|
(4)
|
|
Director
|
|
|
Prior
to 2006
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John
Allen
|
|
|
2/28/2007
|
(5)
|
|
-
|
|
|
-
|
|
|
7,945
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
2,384
|
(5)
|
|
Director
|
|
|
1/1/2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Levinson
|
|
|
10/15/2007
|
(6)
|
|
-
|
|
|
-
|
|
|
31,644
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
9,493
|
(6)
|
|
Director
|
|
|
2/26/2007
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1)
|
As
part of Chairman's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. Frugone was entitled to 250,000 shares
of the
Company's Common Stock which has fair market value of $15,000.
At December
31, 2007, none of these shares we
|
| |
|
|
(2)
|
As
part of director's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. Karundeng was entitled to 250,000 shares
of the
Company's Common Stock which has fair market value of $15,000.
At December
31, 2007, none of these shares
|
| |
|
|
(3)
|
As
part of director's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. McConnaughy was entitled to 250,000 shares
of the
Company's Common Stock which has fair market value of $15,000.
At December
31, 2007, none of these share
|
| |
|
|
(4)
|
As
part of director's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. Rothenberg was entitled to 52,740 shares
of the
Company's Common Stock which has fair market value of $3,164. At
December
31, 2007, none of these shares w
|
| |
|
|
(5)
|
As
part of director's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. Allen was entitled to 39,726 shares of
the
Company's Common Stock which has fair market value of $2,384. At
December
31, 2007, none of these shares were i
|
| |
|
|
(6)
|
As
part of director's compensation that was proved by the Board of
Director
on December 3, 2007, Mr. Levinson was entitled to 158,219 shares
of the
Company's Common Stock which has fair market value of $9,493. At
December
31, 2007, none of these shares
we
|
|
Item 11.
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.
|
As
of
March 31, 2008, there were 649,743,260 shares of the Company’s $0.00001 par
value per share common stock outstanding. The following table sets forth the
name, address, number of shares beneficially owned, and the percentage of the
Company's total outstanding common stock shares owned by: (i) each of the
Company's Officers and Directors; (ii) the Company's Officers and Directors
as a
group; and (iii) other shareholders of 5% or more of the Registrant's total
outstanding common stock shares.
|
Name
and Address of Beneficial Owner (1)
|
|
Company
Position
|
|
Number
of Shares Owned
|
|
Percent
of Class
|
|
|
Peter
J. Frugone (2)
|
|
|
Chairman,
Chief Executive Officer and Director
|
|
|
52,250,000
|
|
|
8.0
|
%
|
|
Rudolph
Karundeng (3)
|
|
|
Director
|
|
|
52,250,000
|
|
|
8.0
|
%
|
|
John
E. McConnaughy Jr. (4)
|
|
|
Director
|
|
|
10,125,000
|
|
|
1.6
|
%
|
|
James
Rothenberg (3)
|
|
|
Director
|
|
|
52,740
|
|
|
0.0
|
%
|
|
John
Allen (6)
|
|
|
Former
Director (1/1/07 - 2/28/07)
|
|
|
39,726
|
|
|
0.0
|
%
|
|
Robert
Levinson (7)
|
|
|
Former
Director (2/26/07 - 10/15/07)
|
|
|
158,219
|
|
|
0.0
|
%
|
|
Arrow
Pacific Resources Group Limited (8)
|
|
|
|
|
|
349,370,000
|
|
|
53.8
|
%
|
|
AIS
International Holdings Ltd. (9)
|
|
|
|
|
|
55,000,000
|
|
|
8.5
|
%
|
|
World
Ocean Development Corp. (10)
|
|
|
|
|
|
35,000,000
|
|
|
5.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Officers
and Directors as a Group (4 persons)
|
|
|
|
|
|
114,677,740
|
|
|
17.6
|
%
|
|
(1)
|
As
used in this table, a beneficial owner of a security includes
any person
who, directly or indirectly, through contract, arrangement, understanding,
relationship or otherwise has or shares (a) the power to vote,
or direct
the voting of, such secrity or
|
| |
|
|
(2)
|
Mr.
Frugone's address is 124 West 79th Street, Apt 1, New York, NY.
Mr.
Frugone is entitled to 250,000 common shares related to directors'
compensation, none of which were issued as of December 31, 2007.
Mr.
Frugone also holds 52,000,000 shares of the Co
|
| |
|
|
(3)
|
Mr.
Karundeng's address is 19 Taman Serasi, Botanic Garden View #01-25.
Mr.
Karundeng is entitled to 250,000 common shares related to directors'
compensation, none of which were issued as of December 31, 2007.
Mr.
Karungdeng also holds 52,000,000 shares
|
| |
|
|
(4)
|
Mr.
McConnaughy's address is 637 Valley Road, New Canaan Ct. Mr.
McConnaughy
is entitled to 250,000 common shares related to directors' compensation,
none of which were issued as of December 31, 2007. Mr. McConnaughy
also
holds 9,875,000 shares of the Co
|
| |
|
|
(5)
|
Mr.
Rothenberg is entitled to 52,740 common shares related to directors'
compensation, none of which were issued as of December 31, 2007.
|
| |
|
|
(6)
|
Mr.
Allen is entitled to 39,726 common shares related to directors'
compensation, none of which were issued as of December 31, 2007.
|
| |
|
|
(7)
|
Mr.
Levinson is entitled to 158,219 common shares related to directors'
compensation, none of which were issued as of December 31, 2007.
|
| |
|
|
(8)
|
Arrow
Pacific Resources Group Limited's address is 19 Taman Serasi,
Botanic
Garden View #01-25. Arrow Pacific Resources Group Limited currently
holds
349,370,000 shares of the Company's restricted shares, all of
which are
not exercisable as of December 31
|
| |
|
|
(9)
|
AIS
International Holdings Ltd. currently holds 55,000,000 shares
of the
Company's restricted shares, all of which are not exercisable
as of
December 31, 2007.
|
| |
|
|
(10)
|
World
Ocean Development Corp. currently holds 35,000,000 shares of
the Company's
restricted shares, all of which are not exercisable as of December
31,
2007.
|
|
Item 12.
|
Certain
Relationships and Related
Transactions.
|
Other
than as listed below, we have not been a party to any transaction, proposed
transaction, or series of transactions in which the amount involved exceeds
$60,000, and in which, to our knowledge, any of our directors, officers, five
percent beneficial security holder, or any member of the immediate family of
the
foregoing persons has had or will have a direct or indirect material
interest.
The
Company hereby furnishes the exhibits listed on the attached exhibit index.
Exhibits, which are incorporated herein by reference, may be inspected and
copied at the public reference facilities maintained by the SEC at Room 1024,
Washington, D.C. 20549. Copies of such material may be obtained by mail from
the
Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a website
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at the address
http://www.sec.gov.
|
Item 14.
|
Principal
Accountant fees and
Services.
|
Audit
Fees
Audit
fees for 2007 and 2006 incurred to KBL, LLP were $55,514 and $75,000. All
services provided by independent accountants were approved by the audit
committee. Audit Fees consist of fees billed for professional services
rendered for the audit of the Company’s annual statements, for review of interim
consolidated financial statements included in quarterly reports and services
that are normally provided by KBL LLP in connection with statutory and
regulatory filings or engagements.
Audit
Related Fees
The
Company did not incur audit related fees from KBL LLP in 2007 and 2006.
Audit-Related Fees consist of fees billed for assurance and related services
that are reasonably related to the performance of the audit or review of the
Company’s consolidated financial statements and are not reported under “Audit
Fees.”
Tax
Fees
The
Company did not incur tax fees from KBL LLP in 2007 and 2006. Tax Fees
consist of fees billed for professional services rendered for tax
compliance. These services include assistance regarding federal, state and
local tax compliance.
All
Other Fees
There
were no other fees for professional services rendered to the Company during
the
fiscal years 2007 and 2006, other than the services reported above.
SIGNATURES
In
accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
|
|
|
|
|
|
ARROW
RESOURCES DEVELOPMENT, INC.
|
|
|
|
|
|
Dated:
April 15, 2008
|
By:
|
/
S/ PETER
J.
FRUGONE
Peter
J. Frugone
|
|
|
President
and Chief Executive Officer
|
|
|
|
|
|
Dated:
April 15, 2008
|
By:
|
/
S/ PETER
J.
FRUGONE
Peter
J. Frugone
|
|
|
Principal
Accounting Officer
|
In
accordance with the Exchange Act, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
Signatures
|
|
Title
|
|
Date
|
|
|
|
|
| |
|
|
|
|
|
/
S/ PETER
J.
FRUGONE
Peter
J. Frugone
|
|
President
and Chief Executive Officer and Director (principal executive
officer)
|
|
April
15, 2008
|
|
|
|
|
| |
|
|
|
|
|
/
S/ PETER
J.
FRUGONE
Peter
J. Frugone
|
|
Principal
Accounting Officer (principal financial and accounting
officer)
|
|
April
15, 2008
|
|
|
|
|
|
|
| |
|
|
|
|
|
/
S/ JOHN
E.
McCONNAUGHY
,
JR
.
John
E. McConnaughy, Jr.
|
|
Director
|
|
April
15, 2008
|
|
|
|
|
| |
|
|
|
|
|
/
S/ JAMES
ROTHENBERG
James
Rothenberg
|
|
Director
|
|
April
2, 2008
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
INDEX
TO CONSOLIDATED AUDITED FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2007
|
Report
of Independent Registered Public Accounting Firm
|
|
F-1
|
|
|
|
|
Consolidated
financial statements:
|
|
|
|
Consolidated
Balance Sheets (At December 31, 2007 and 2006)
|
|
F-2
|
|
Consolidated
Statement of Operations (For the year ended December 31, 2007 and
for the
period from inception November 15, 2005 to December 31,
2007)
|
|
F-3
|
|
Consolidated
Statement of Changes in Stockholders' (Deficit) Equity (For the year
ended
December 31, 2007)
|
|
F-4
|
|
Consolidated
Statement of Cash Flows (For the year ended December 31, 2007 and
for the
period from inception November 15, 2005 to December 31,
2007)
|
|
F-5
|
|
|
|
|
Notes
to the consolidated financial statements
|
|
F-6 - F-17
|
To
the
Board of Directors and Stockholders
Arrow
Resources Development, Inc.
New
York,
New York
We
have
audited the accompanying consolidated balance sheet of Arrow Resources
Development, Inc. and Subsidiaries, development stage entity, (“the Company”) as
of December 31, 2007 and 2006, and the related consolidated statements of
operations, cash flows, and changes in stockholders’ (deficit) equity during the
development stage, for the year ended December 31, 2007, and for the period
from
inception (November 15, 2005) to December 31, 2007. These consolidated financial
statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the consolidated financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In
our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of Arrow Resources Development,
Inc. and Subsidiaries as of December 31, 2007 and 2006, and the results of
its
operations and its cash flows during the development stage for the year ended
December 31, 2007, and for the period from inception (November 15, 2005) to
December 31, 2007 in conformity with accounting principles generally accepted
in
the United States.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Notes 6 and 10
to
the consolidated financial statements, the Company has suffered recurring losses
from operations, and is dependent upon shareholders to provide sufficient
working capital to maintain continuity. These circumstances create substantial
doubt about the Company’s ability to continue as a going concern. The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
KBL,
LLP
Certified
Public Accountants
April
15,
2008
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
Consolidated
Balance Sheets (during the development stage)
|
|
|
December
31, 2007
|
|
December
31, 2006
|
|
|
ASSETS
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
Cash
|
|
$
|
1,040
|
|
$
|
—
|
|
|
Prepaid
expenses
|
|
|
|
|
|
—
|
|
|
Total
current assets
|
|
|
1,040
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
Amortizable
intangible asset
|
|
|
|
|
|
|
|
|
Marketing
and distribution agreement
|
|
|
—
|
|
|
125,000,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
1,040
|
|
$
|
125,000,000
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
Accounts
and accrued expenses payable (including $3,592,491 and $2,510,491
due to
shareholders, respectively)
|
|
$
|
4,085,122
|
|
$
|
2,719,251
|
|
|
Due
to related parties
|
|
|
4,404,183
|
|
|
2,597,751
|
|
|
Notes
payable, including accrued interest of $20,000 in both
years
|
|
|
245,000
|
|
|
245,000
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
8,734,305
|
|
|
5,562,002
|
|
|
|
|
|
|
|
|
|
|
|
Commitments
and contingencies
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
(DEFICIT) EQUITY
|
|
|
|
|
|
|
|
|
Preferred
stock, $0.10 par value, 10 million shares authorized, 280,000
shares to be
issued
|
|
|
280,000
|
|
|
—
|
|
|
Common
stock, $0.00001 par value, 1 billion shares authorized, 649,743,240
and
649,543,240 issued and outstanding, respectively; 1,485,000
and 985,000
shares to be issued at December 31, 2007 and 2006,
respectively
|
|
|
6,497
|
|
|
6,495
|
|
|
Additional
paid-in capital
|
|
|
124,790,245
|
|
|
124,218,206
|
|
|
Accumulated
deficit
|
|
|
(133,810,007
|
)
|
|
(4,786,703
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ (Deficit) equity
|
|
|
(8,733,265
|
)
|
|
119,437,998
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ (deficit) equity
|
|
$
|
1,040
|
|
$
|
125,000,000
|
|
See
accompanying notes to the consolidated financial statements.
(A
DEVELOPMENT STAGE COMPANY)
Consolidated
Statement of Operations (during the development stage)
|
|
|
For
the Year Ended December
31, 2007
|
|
For
the Period From
Inception
(November
15,
2005) to December
31,
2006
|
|
Accumulated
during the
development
stage for the Period
From
Inception (November 15,
2005)
to December 31, 2007
|
|
|
Revenue
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Consulting
fees and services, including $3,358,386, $4,197,084 and $7,555,470
incurred to related parties, respectively
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,541,850
|
|
|
4,413,216
|
|
|
7,955,066
|
|
|
General
and administrative
|
|
|
161,624
|
|
|
392,553
|
|
|
554,177
|
|
|
Directors'
compensation
|
|
|
260,178
|
|
|
-
|
|
|
260,178
|
|
|
Delaware
franchise taxes
|
|
|
57,652
|
|
|
127,349
|
|
|
185,001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
4,021,304
|
|
|
4,933,118
|
|
|
8,954,422
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations during the development stage
|
|
|
(4,021,304
|
)
|
|
(4,933,118
|
)
|
|
(8,954,422
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
Gain
on write off of liabilities associated with predecessor entity
not to be
paid
|
|
|
-
|
|
|
395,667
|
|
|
395,667
|
|
|
Loss
on write off of marketing agreement
|
|
|
(125,000,000
|
)
|
|
-
|
|
|
(125,000,000
|
)
|
|
Loss
on settlement of predecesoor
|
|
|
|
|
|
|
|
|
|
|
|
entity
stockholder litigation
|
|
|
(2,000
|
)
|
|
-
|
|
|
(2,000
|
)
|
|
Expenses
incurred as part of recapitalization transaction
|
|
|
-
|
|
|
(249,252
|
)
|
|
(249,252
|
)
|
|
|
|
|
(125,002,000
|
)
|
|
146,415
|
|
|
(124,855,585
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(129,023,304
|
)
|
$
|
(4,786,703
|
)
|
$
|
(133,810,007
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted net loss per weighted- average shares common stock
outstanding
|
|
|
(0.203
|
)
|
$
|
(0.008
|
)
|
$
|
(0.212
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
number of shares of common stock outstanding
|
|
|
636,073,137
|
|
|
623,733,021
|
|
|
631,654,538
|
|
See
accompanying notes to the consolidated financial statements.
(A
DEVELOPMENT STAGE COMPANY)
Consolidated
Statement of Changes in Stockholders' (Deficit) Equity (during the development
stage)
| |
|
Series
A Convertible Preferred Stock
|
|
Common
Stock
|
|
Additional
|
|
|
|
|
|
|
|
|
Shares
to be issued
|
|
Amount
|
|
Shares
issued
|
|
Amount
|
|
Paid-in
Capital
|
|
|
|
Total
|
|
|
Balance,
November 14, 2005 pursuant to recapitalization transaction
|
|
|
—
|
|
$
|
—
|
|
|
25,543,240
|
|
$
|
255
|
|
$
|
(2,674,761
|
)
|
$
|
—
|
|
$
|
(2,674,506
|
)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock conversion and settlement of senior note pursuant to
recapitalization transaction
|
|
|
—
|
|
|
—
|
|
|
624,000,000
|
|
|
6,240
|
|
|
125,907,967
|
|
|
—
|
|
|
125,914,207
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the period from November 15, 2005 to December 31,
2005
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,272,258
|
)
|
|
(1,272,258
|
)
|
|
Balance,
December 31, 2005
|
|
|
|
|
$
|
|
|
|
649,543,240
|
|
$
|
6,495
|
|
$
|
123,233,206
|
|
$
|
(1,272,258
|
) |
$ |
121,967,443
|
|
|
Common
stock to be issued for cash received by Company (985,000
shares)*
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
985,000
|
|
|
—
|
|
|
985,000
|
|
|
Net
loss for the year
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,514,445
|
)
|
|
(3,514,445
|
)
|
|
Balance
at December 31, 2006
|
|
|
|
|
$
|
|
|
|
649,543,240
|
|
$
|
6,495
|
|
$
|
124,218,206
|
|
$
|
(4,786,703
|
)
|
$
|
119,437,998
|
|
|
Common
stock to be issued for cash received by Company (500,000
shares)*
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
500,000
|
|
|
—
|
|
|
500,000
|
|
|
Series
A Convertible Preferred Stock to be issued for cash received
by
Company
|
|
|
280,000
|
|
|
280,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
280,000
|
|
|
Common
stock issued in settlement of predecesoor entity stockholder
litigation
|
|
|
—
|
|
|
—
|
|
|
200,000
|
|
|
2
|
|
|
11,998
|
|
|
—
|
|
|
12,000
|
|
|
Common
stock to be issued for directors' compensation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,041
|
|
|
|
|
|
60,041
|
|
| Net
loss for the year |
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
— |
|
|
(129,023,304
|
)
|
|
(129,023,304 |
)
|
|
Balance
at December 31, 2007
|
|
|
280,000
|
|
$
|
280,000
|
|
|
649,743,240
|
|
$
|
6,497
|
|
$
|
124,790,245
|
|
$
|
(133,810,007
|
)
|
$
|
(8,733,265
|
)
|
*
At
December 31, 2007 and December 31, 2006, there are 1,501,488 and 500,000 shares
of Company Common Stock to be issued, respectively.
See
accompanying notes to the consolidated financial statements.
(A
DEVELOPMENT STAGE COMPANY)
Consolidated
Statement of Cash Flows (during the development stage)
For
the
year ended December 31, 2007, for the period from inception (November 15, 2005)
to December 31, 2006, and for the period from inception (November 15, 2005)
to
December 31, 2007
| |
|
For
the Year Ended December 31, 2007
|
|
For
the Period From Inception (November 15, 2005) to December 31,
2006
|
|
Accumulated
during the development stage for the Period From Inception (November
15,
2005) to December 31, 2007
|
|
|
Net
loss
|
|
$
|
(129,023,304
|
)
|
$
|
(4,786,703)
|
|
$ |
(133,810,007
|
)
|
|
Adjustments
to reconcile net loss to net cash (used in) operating
activities:
|
|
|
|
|
|
|
|
|
|
|
|
Net
non-cash change in stockholders’ equity due to recapitalization
transaction
|
|
|
-
|
|
|
1,264,217
|
|
|
1,264,217
|
|
|
Loss
on write-off of marketing and distribution agreement
|
|
|
125,000,000
|
|
|
-
|
|
|
125,000,000
|
|
|
Stock-based
directors' compensation to be issued
|
|
|
60,041
|
|
|
-
|
|
|
60,041
|
|
|
Changes
in operating asset and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
Increase
in accounts and accrued expenses payable
|
|
|
1,365,872
|
|
|
1,482,690
|
|
|
2,848,562
|
|
|
Net
cash (used in) operating activities
|
|
|
(2,597,391
|
)
|
|
(2,039,796
|
)
|
|
(4,637,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
acquired as part of merger transaction
|
|
|
-
|
|
|
39,576
|
|
|
39,576
|
|
|
Advances
to related party
|
|
|
(369,575
|
)
|
|
-
|
|
|
(369,575
|
)
|
|
Net
cash provided by investing activities
|
|
|
(369,575
|
)
|
|
39,576
|
|
|
(329,999
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds
of issuance of note payable
|
|
|
-
|
|
|
25,000
|
|
|
25,000
|
|
|
Proceeds
of loans received from related parties
|
|
|
1,175,000
|
|
|
-
|
|
|
1,175,000
|
|
|
Repayment
towards loan from related party
|
|
|
(86,425
|
)
|
|
-
|
|
|
(86,425
|
)
|
|
Net
increase in due to related parties attributed to operating expenses
paid
on the Company’s behalf by the related party
|
|
|
1,087,433
|
|
|
940,220
|
|
|
2,027,653
|
|
|
Net
increase in investments/capital contributed
|
|
|
791,998
|
|
|
985,000
|
|
|
1,776,998
|
|
|
Advances
from senior advisor
|
|
|
-
|
|
|
50,000
|
|
|
50,000
|
|
|
Net
cash provided by financing activities
|
|
|
2,968,006
|
|
|
2,000,220
|
|
|
4,968,226
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Net
change in cash
|
|
|
1,040
|
|
|
-
|
|
|
1,040
|
|
|
Cash
balance at beginning of period
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Cash
balance at end of period
|
|
$
|
1,040
|
|
$
|
-
|
|
$
|
1,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
|
|
|
Income
taxes
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Interest
expense
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
purchase of marketing and distribution agreement
|
|
$
|
-
|
|
$
|
125,000,000
|
|
$
|
125,000,000
|
|
|
Settlement
of senior note payable through issuance of convertible preferred
stock
|
|
$
|
-
|
|
$
|
125,000,000
|
|
$
|
125,000,000
|
|
|
Non-cash
acquisition of accrued expenses in recapitalization
|
|
$
|
-
|
|
$
|
421,041
|
|
$
|
421,041
|
|
|
Non-cash
acquisition of notes payable in recapitalization
|
|
$
|
-
|
|
$
|
220,000
|
|
$
|
220,000
|
|
See
accompanying notes to the consolidated financial statements.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 -
NATURE OF BUSINESS / ORGANIZATION
Business
Description
Arrow
Resources Development, Inc. and Subsidiaries (“the Company”), was subject to a
change of control transaction that was accounted for as a recapitalization
of
CNE Group, Inc. (“CNE”) in November 2005. Arrow Resources Development, Ltd.,
(“Arrow Ltd.”) the Company’s wholly-owned subsidiary, was incorporated in
Bermuda in May 2005. Arrow Ltd. provides marketing and distribution services
for
natural resource products.
In
April
of 2006, Arrow Ltd. entered into an agency agreement with APR to provides
marketing and distribution services for timber resource products and currently
has an exclusive marketing and sales agreement with APR to market lumber and
related products from land leased by GMPLH which is operated by APR and it's
subsidiaries, located in Indonesia. Under the agreement Arrow Ltd. will receive
a commission of 10% of gross sales derived from lumber and related products.
The
consideration to be paid to APR will be in the form of a to-be-determined amount
of the Company's common stock, subject to the approval of the Board of
Directors.
As
of
December 31, 2005, the Company also had a wholly-owned subsidiary, Career
Engine, Inc. (“Career Engine”) for which operations were discontinued prior to
the recapitalization transaction. The net assets of Career Engine had no value
as of December 31, 2005.
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of consolidation:
The
accompanying consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiary, Arrow. All significant inter-company
balances and transactions have been eliminated.
Income
taxes:
The
Company follows SFAS No. 109, “Accounting for Income Taxes.” Under the asset and
liability method of SFAS No. 109, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities
and
their respective tax bases. A valuation allowance has been provided for the
Company's net deferred tax asset, due to uncertainty of
realization.
Effective
January 1, 2007, the Company adopted Financial Accounting Standard Board
Interpretation No. 48 Accounting for Uncertainty in Income Taxes (“FIN 48”). FIN
48 clarifies the accounting for uncertainty in income taxes recognized in an
enterprise’s financial statements in accordance with SFAS Statement No. 109
Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and
measurement attributes for the financial statement recognition and measurement
of a tax position taken or expected to be taken in tax return. FIN 48 also
provides guidance on derecognition, classification, interest and penalties,
accounting interim period, disclosure and transition. There were no adjustments
required upon adoption of FIN 48.
Fair
value of financial instruments:
For
financial statement purposes, financial instruments include cash, accounts
and
accrued expenses payable, and amounts due to Empire Advisory, LLC (“Empire”) (as
discussed in Notes 6 and 7) for which the carrying amounts approximated fair
value because of their short maturity.
Use
of
estimates:
The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of
assets and liabilities and disclosure of contingent assets and liabilities
at
the date of the consolidated financial statements and the reported amounts
of
revenues and expenses during the reporting period. Actual results may differ
from those estimates.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loss
per
share:
The
Company complies with the requirements of the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 128, “Earning per
share” (“SFAS No. 128”). SFAS No. 128 specifies the compilation, presentation
and disclosure requirements for earning per share for entities with publicly
held common stock or potentially common stock. Net loss per common share, basic
and diluted, is determined by dividing the net loss by the weighted average
number of common shares outstanding.
Net
loss
per diluted common share does not include potential common shares derived from
stock options and warrants because they are anti-dilutive for the period from
November 15, 2005 to December 31, 2006 and for the year ended December 31,
2007.
As of December 31, 2007, there are no dilutive equity instruments outstanding.
However, the Company has 280,000 shares of Series A Convertible Preferred Stock
that are issuable as of December 31, 2007.
Acquired
intangibles:
Intangible
assets are comprised of an exclusive sales and marketing agreement. In
accordance with SFAS 142, “Goodwill and Other Intangible Assets” the Company
assesses the impairment of identifiable intangibles whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment
review include the following:
|
|
1.
|
Significant
underperformance relative to expected historical or projected future
operating results;
|
|
|
2.
|
Significant
changes in the manner of use of the acquired assets or the strategy
for
the overall business; and
|
|
|
3.
|
Significant
negative industry or economic
trends.
|
When
the
Company determines that the carrying value of intangibles may not be recoverable
based upon the existence of one or more of the above indicators of impairment
and the carrying value of the asset cannot be recovered from projected
undiscounted cash flows, the Company records an impairment charge. The Company
measures any impairment based on a projected discounted cash flow method using
a
discount rate determined by management to be commensurate with the risk inherent
in the current business model. Significant management judgment is required
in
determining whether an indicator of impairment exists and in projecting cash
flows.
The
sales
and marketing agreement will be amortized over 99 years, utilizing the
straight-line method. Amortization expense has not been recorded since the
acquisition occurred as the company has not yet made any sales.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consideration
of Other Comprehensive Income Items:
SFAS
130
- Reporting Comprehensive Income, requires companies to present comprehensive
income (consisting primarily of net income plus other direct equity changes
and
credits) and its components as part of the basic financial statements. For
the
period from inception (November 15, 2005) to December 31, 2007, the Company’s
consolidated financial statements do not contain any changes in equity that
are
required to be reported separately in comprehensive income.
Recent
Accounting Pronouncements:
In
December 2007, the FASB issued SFAS No.160, “Noncontrolling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”. SFAS
No.160 requires that the ownership interests in subsidiaries held by parties
other than the parent be clearly identified, labeled, and presented in the
consolidated statement of financial position within equity, in the amount of
consolidated net income attributable to the parent and to the noncontrolling
interest on the face of the consolidated statement of income, and that Entities
provide sufficient disclosures that clearly identify and distinguish between
the
interests of the parent and the interests of the noncontrolling owners.
SFAS No.160 is effective for fiscal years, beginning on or after December 15,
2008 and cannot be applied earlier.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No.
141(revised 2007), “Business Combinations,” (“FASB 141R”). This standard
requires that entities recognize the assets acquired, liabilities assumed,
contractual contingencies and contingent consideration measured at their fair
value at the acquisition date for any business combination consummated after
the
effective date. It further requires that acquisition-related costs are to be
recognized separately from the acquisition and expensed as incurred. FASB 141R
is effective for fiscal years beginning after December 15, 2008.
The
Company does not anticipate that the adoption of SFAS No. 141R and No. 160
will
have an impact on the Company's overall results of operations or financial
position, unless the Company makes a business acquisition in which there is
a
noncontrolling interest.
In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a Simplified Method in Developing Expected Term of
Share Options” (“SAB 110”). SAB 110 expresses the current view of the staff that
it will accept a company’s election to use the simplified method discussed in
Staff Accounting Bulletin 107, Share
Based Payment,
(“SAB
107”), for estimating the expected term of “plain vanilla” share options
regardless of whether the company has sufficient information to make more
refined estimates. SAB 110 became effective for the Company on January 1, 2008.
The adoption of SAB 110 is not expected to have a material impact on the
Company’s financial position.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 -
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (continued):
In
February 2007, the Financial Accounting Standards Board (“FASB”) issued SFAS
No.159, “The Fair Value Option for Financial Assets and Financial Liabilities -
Including an amendment of FASB Statement No.115”. SFAS No.159 permits entities
to choose to measure eligible financial instruments and other items at fair
value at specified election dates. A business entity shall report unrealized
gains and losses on items for which the fair value option has been elected
in
earnings at each subsequent reporting date. The fair value option may be applied
instrument by instrument but only upon the entire instrument - not portions
of
the instrument. Unless a new election date occurs, the fair value option is
irrevocable. SFAS No.159 is effective as of the beginning of an entity's first
fiscal year that begins after November 15, 2007. The Company does not expect
that the adoption of SFAS No. 159 will have a material effect on the Company's
consolidated financial statements.
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements”. The
statement standardizes the definition of fair value, establishes a framework
for
measuring in generally accepted accounting principles and sets forth the
disclosures about fair value measurements. SFAS No. 157 is effective for
the beginning of an entity's fiscal year that begins after November 15, 2007.
The Company does not expect SFAS No. 157 will have a material effect on its
financial statements.
NOTE
3 -
AGREEMENT AND PLAN OF MERGER BETWEEN ARROW RESOURCES DEVELOPMENT, LTD. AND
CNE
GROUP, INC.
In
August
2005, the Company entered into an Agreement and Plan of Merger (“the Agreement”)
with CNE Group, Inc. (“CNE”) under which, CNE was required to issue 10 million
shares of Series AAA convertible preferred stock (“the Preferred Stock”) to the
Company, representing 96% of all outstanding equity of CNE on a fully diluted
basis for the Marketing and Distribution Agreement provided to the Company,
Empire, as agent. Under the Agreement, the Company changed its name to Arrow
Resources Development, Inc. and divested all operations not related to Arrow
Ltd. The Preferred Stock contained certain liquidation preferences and each
share of the Preferred Stock was convertible to 62.4 shares of common
stock.
The
transaction was consummated upon the issuance of the Preferred Stock on November
14, 2005, which was used to settle the senior secured note payable for
$125,000,000 and $1,161,000 of cash advances from Empire. The Preferred Stock
was subsequently converted to common stock on December 2, 2005, for a total
of
approximately 649 million shares of common stock outstanding. This was recorded
as a change of control transaction that was accounted for as a recapitalization
of CNE.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 -
AGREEMENT AND PLAN OF MERGER BETWEEN ARROW RESOURCES DEVELOPMENT, LTD. AND
CNE
GROUP, INC. (CONTINUED)
The
operations of the Company’s wholly-owned subsidiary, Career Engine, Inc. were
discontinued prior to the recapitalization transaction. The net assets of Career
Engine had no value as of December 31, 2005.
During
the period from November 15, 2005 to December 31, 2005, the Company incurred
$249,252 of expenses incurred as part of recapitalization
transaction.
NOTE
4 -
INCOME TAXES
In
August
2005, the Company entered into an Agreement and Plan of Merger (“the Agreement”)
with CNE Group, Inc. (“CNE”). Under the Agreement, the Company changed its name
to Arrow Resources Development, Inc. and divested all operations not related
to
Arrow Ltd. The transaction was consummated upon the issuance of the Preferred
Stock on November 14, 2005. (See Note 3 for a detailed description of the
transaction.)
Consequently,
as of November 14, 2005 the predecessor CNE entity had a net operating loss
carryforward available to reduce future taxable income for federal and state
income tax purposes of the successor entity of approximately zero, because
those
losses arose from the predecessor CNE exiting previous business lines that
had
generated operating losses.
For
tax
purposes, all expenses incurred by the re-named entity now known as Arrow
Resources Development, Inc. after November 14, 2005 have been capitalized as
start up costs in accordance with Internal Revenue Code Section (“IRC”) No. 195.
Pursuant to IRC 195, the Company will be able to deduct these costs by
amortizing them over a period of 15 years for tax purposes once the Company
commences operations. Accordingly for tax purposes none of the Company’s post
November 14, 2005 losses are as yet reportable in Company income tax returns
to
be filed for either the year ended December 31, 2005 or 2006.
The
significant components of the Company’s deferred tax assets are as
follows:
|
Net
operating loss carryforward
|
|
$
|
62,900
|
|
|
Differences
resulting from use of cash basis for tax purposes
|
|
|
-
|
|
| |
|
|
|
|
|
Total
deferred tax assets
|
|
|
62,900
|
|
|
Less
valuation allowance
|
|
|
(62,900
|
)
|
| |
|
|
|
|
|
Net
deferred tax assets
|
|
$
|
—
|
|
|
The
net operating losses expire as follows:
|
|
|
|
|
December
31, 2026
|
|
$
|
127,349
|
|
|
December
31, 2027
|
|
|
57,652
|
|
|
Net
Operating Loss Carryover
|
|
$
|
185,001
|
|
|
Reconciliation
of net loss for income tax purposes to net loss per financial statement
purposes:
|
|
|
|
|
|
|
|
Costs
capitalized under IRC Section 195 which will be amortizable
over 15 years
for tax purposes once the Company commences
operations
|
|
$
|
133,625,006
|
|
|
Delaware
franchise taxes deductible on Company's tax return
|
|
|
185,001
|
|
| |
|
|
|
|
|
Net
loss for the period from inception (November 15, 2005) to September
30,
2007
|
|
$
|
133,810,007
|
|
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 -
NOTES PAYABLE
As
of
December 31, 2007 and 2006, the Company had notes payable outstanding as
follows:
|
|
|
|
|
September
30,
|
|
December
31,
|
|
|
Holder
|
|
Terms
|
|
2007
|
|
2006
|
|
|
Barry
Blank (1)
|
|
|
Due
on demand, 10% interest
|
|
$
|
200,000
|
|
$
|
200,000
|
|
|
H.
Lawrence Logan
|
|
|
Due
on demand, non-interest bearing
|
|
|
25,000
|
|
|
25,000
|
|
|
Accrued
interest (1)
|
|
|
|
|
|
20,000
|
|
|
20,000
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
$
|
245,000
|
|
$
|
245,000
|
|
(1) The Company has a note payable outstanding for $200,000, plus $20,000 in
accrued interest. Although the predecessor company (CNE) reserved 456,740 shares
of its common stock to retire this debt pursuant to a settlement agreement,
the
stock cannot be issued until the party to whom the note was assigned by its
original holder emerges from bankruptcy or reorganization. During the year
ended
December 31, 2007, no interest expense was recorded on the note as the number
of
shares to be issued was determined in the settlement agreement, executed prior
to the recapitalization.
NOTE
6 -
IMPAIRMENT OF MARKETING AND DISTRIBUTION AGREEMENT AND RELATED SENIOR NOTE
PAYABLE DUE TO EMPIRE ADVISORY, LLC
As
discussed in Note 1, in August 2005, the Company executed a marketing and
distribution agreement with Arrow Pte. This agreement was valued at fair value
as determined based on an independent appraisal, which approximates the market
value of 96% of the CNE public stock issued in settlement of the
note.
The
marketing and distribution agreement would have been amortized over the
remainder of 99 years (the life of the agreement) once the Company commenced
sales. As of December 31, 2005, the Company had recorded a $125,000,000
amortizable intangible asset for this agreement and corresponding credits to
common stock and additional paid-in capital in conjunction with the stock
settlement of the senior secured note payable to Empire Advisory, LLC and
related cash advances in the same aggregate amount. The senior secured note
payable was non-interest bearing and was repaid in the form of the preferred
stock, which was subsequently converted to common stock (See Note 3). Any
preferred stock issued under the senior secured note payable is considered
restricted as to the sale thereof under SEC Rule 144 as unregistered securities.
No amortization of the agreement has ever been taken during the period from
inception (November 15, 2005) to December 31, 2007, as the relevant operations
had not commenced.
The
Company’s only intangible asset was comprised of this marketing and distribution
agreement with Arrow Pte. In accordance with SFAS 142, “Goodwill and Other
Intangible Assets” this intangible agreement is no longer amortized; instead the
intangible is tested for impairment on an annual basis. The Company assesses
the
impairment of identifiable intangibles and goodwill whenever events or changes
in circumstances indicate that the carrying value may not be recoverable.
Factors the Company considers to be important which could trigger an impairment
review include the following:
|
|
·
|
Significant
inability to achieve expected projected future operating results;
|
|
|
·
|
Significant
changes in the manner in which the work is able to be performed what
increases costs;
|
|
|
·
|
Significant
negative impact on the environment.
|
We
perform goodwill impairment tests on an annual basis and on an interim basis
if
an event or circumstance indicates that it is more likely than not that
impairment has occurred. We assess the impairment of other amortizable
intangible assets and long-lived assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors
we consider important that could trigger an impairment review include
significant underperformance to historical or projected operating results,
substantial changes in our business strategy and significant negative industry
or economic trends.
The
World
Bank and World Wildlife Federation have adopted forest management guidelines
to
ensure economic, social and environmental benefits from timber and non-timber
products and the environmental services provided by forests. Most countries,
including Indonesia as of 2007, have adopted these guidelines as law in order
to
promote economical development while combating the ongoing crisis of worldwide
deforestation.
It
has
always been the policy of Arrow Pte to follow the international guidelines
for
the harvesting of timber in virgin forests. In December 2007, Arrow Pte.
assessed that it would be unable to harvest the timber products in Papua, New
Guinea due to the fact that the widely accepted international guidelines of
the
World Wildlife Federation had not been adopted by Papua, New Guinea. This fact
is adverse to the economic, social and environmental goals of Arrow Pte. because
with the amount of land that the project was allotted combined with the agreed
upon previous guidelines of the marketing and distribution agreement, yields
would be significantly reduced. Given the significant change in the economics
of
the harvesting of the timber in Papua, New Guinea, Arrow Pte. has decided not
to
pursue any further operations in Papua, New Guinea given that the above
restrictions cause a significant reduction in the volume of harvesting, which
results in a disproportionate cost to yield ration at the Papua, New Guinea
site
which makes the project not economically feasible in the foreseeable
future.
Based
on
the fact that Arrow Pte. is unable to fulfill their part of the agreement,
the
Company has reached the conclusion that the marketing and distribution agreement
has no value. Therefore, the Company has fully impaired the value of the
agreement and recorded a loss on write-off of the marketing and distribution
agreement of $125,000,000 at December 31, 2007.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 -
RELATED PARTY TRANSACTIONS
[1]
Management Agreement with Empire Advisory, LLC
Effective
August 1, 2005, the Company entered into a Management Agreement with Empire
Advisory, LLC (“Empire”) under which Empire provides chief executive officer and
administrative services to the Company in exchange for a) an annual fee of
$300,000 for overhead expenses, b) $25,000 per month for rent, c) $1,000,000
per
annum (subject to increases in subsequent years) for executive services, and
d)
a one-time fee of $150,000 for execution of the proposed transaction. In
addition, the Board authorized a one-time payment of $500,000 to Empire upon
closing the transaction.
As
of
December 31, 2007 and December 31, 2006, the Company had short-term borrowings
of $3,029,183 and $2,311,326, respectively, due to Empire, consisting of cash
advances to the Company and working capital raised by Empire, as agent, on
behalf of the Company.
As of
December 31, 2007 and December 31, 2006, the Company had short-term advances
of
$369,575 and had short-term borrowings of $86,425, respectively, due to Hans
Karundeng. The Company repaid $456,000 of loans during the year ended December
31, 2007, which includes short term advances made to him of $369,575 during
the
year then ended. These amounts are non-interest bearing and due on
demand.
Peter
Frugone is a member of the Board of Directors of the Company and is the owner
of
Empire. Empire, as agent, was the holder of the $125 million senior secured
note
payable settled in December 2005.
Consulting
fees and services charged in the Statement of Operations for the year ended
December 31, 2007 incurred to Empire totaled $1,858,386. Consulting
fees and services charged to the Statement of Operations for the year ended
December 31, 2006 and for the period from November 15, 2005 to December 31,
2005
incurred to Empire totaled $1,591,016 and $698,834, respectively.
During
the year ended December 31, 2007, the Company also incurred Director’s
compensation expense of $65,000 to Mr. Frugone, consisting of cash compensation
of $50,000 and stock based compensation of $15,000 based upon the Company’s
share trading price on the date of the grant of December 3, 2007. At December
31, 2007 the Company is obligated to issue 250,000 Common Stock shares to him,
and “Accounts payable and accrued liabilities” includes $50,000 due to him for
the cash based portion of his 2007 director’s compensation (See Note 7[4]).
During
the years ended December 31, 2007 and 2006, the Company made cash payment of
$1,028,889 and $562,454, respectively, to Empire under the
agreement.
[2]
Engagement and Consulting Agreements entered into with individuals affiliated
with Arrow
PNG:
Consulting
fees and services charged in the Statement of Operations for the year ended
December 31, 2007 and December 31, 2006 incurred to Hans Karundeng and Rudolph
Karundeng under Engagement and Consulting Agreements totaled $1,500,000 and
$1,666,666, respectively. In addition, as of December 31, 2007 and 2006 the
Company owed them a total of $3,592,491 and $2,510,491, respectively. These
agreements are discussed in detail in Note 11.
During
the year ended December 31, 2007, the Company also incurred Director’s
compensation expense $65,000 to Rudolph Karundeng, consisting of cash
compensation of $50,000 and stock based compensation of $15,000 based upon
the
Company’s share trading price on the date of the grant of December 3, 2007. At
December 31, 2007 the Company is obligated to issue 250,000 Common Stock shares
to him, and “Accounts payable and accrued liabilities” includes $50,000 due to
him for the cash based portion of his 2007 director’s compensation (See Note
7[4]).
[3]
Non-Interest Bearing Advance Received from Company Director:
In
July
2006, the Company received a $150,000 non-interest bearing advance from John
E.
McConnaughy, Jr., a Director of the Company, which is due on demand. In October
2006, the Company received an additional $200,000 non-interest bearing advance
from Mr. McConnaughy, Jr. which is also due on demand. In February and March
2007, the Company received an additional $200,000 non-interest bearing advance
from John E. McConnaughy, Jr., which is due on demand. In May and June 2007,
the
Company received an additional $250,000 non-interest bearing advance from John
E. McConnaughy, Jr., which is due on demand. In July 2007, the Company received
$250,000 of additional non-interest bearing advances from John E. McConnaughy,
Jr., which is due on demand. In August 2007, the Company received a $50,000
non-interest bearing advance from John E.McConnaughy, Jr., which is due on
demand. In October 2007 the Company received a $200,000 non-interest bearing
advance from John E. McConnaughy, Jr., which is due on demand. In December
2007
the Company received a $250,000 non-interest bearing advance from John E.
McConnaughy, Jr., which is due on demand. As of December 31, 2007 and December
31, 2006, the Company had $1,375,000 and $200,000, respectively, left to be
repaid to Mr. McConnaughy, which is included in “Due to Related
Parties.”
During
the year ended December 31, 2007, the Company also incurred Director’s
compensation expense $65,000 to Mr. McConnaughy, consisting of cash compensation
of $50,000 and stock based compensation of $15,000 based upon the Company’s
share trading price on the date of the grant of December 3, 2007. At December
31, 2007 the Company is obligated to issue 250,000 Common Stock shares to him,
and “Accounts payable and accrued liabilities” includes $50,000 due to him for
the cash based portion of his 2007 director’s compensation (See Note 7[4]).
[4]
Directors’ Compensation:
On
December 3, 2007, the Board of Directors approved a plan to compensate all
members of the Board of Directors at a rate of $50,000 per year and 250,000
shares of Company common stock effective January 1, 2007. This compensation
plan
applies to any board member that belonged to the Board as of and subsequent
to
January 1, 2007. Those board members that were only on the Board for part of
the
year will received pro-rata compensation based on length of service. As of
December 31, 2007, none of the shares under this plan have been issued and
the
Company has accrued $200,137 of cash and recorded additional paid-in capital
of
$60,041 for stock compensation based on the fair value of 1,000,685 shares
to be
issued to the members of the Board.
NOTE
8 -
STOCKHOLDER’S EQUITY
Arrow
Ltd. was incorporated in May 2005 as a Bermuda corporation. Upon incorporation,
1,200,000 shares of $.01 par value common stock were authorized and issued
to
CNE.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 -
STOCKHOLDER’S EQUITY (CONTINUED)
On
November 14, 2005, the Company increased its authorized shares to 1 billion
and
reduced the par value of its common stock to $0.00001 per share, resulting
in a
common stock conversion rate of 1 to 62.4.
On
November 14, 2005, the Company completed a reverse merger with CNE Group, Inc.
by acquiring 96% of the outstanding shares of CNE’s common stock in the form of
convertible preferred stock issued in settlement of the senior note
payable.
During
2005, CNE divested or discontinued all of its subsidiaries in preparation for
the reverse merger transaction. Accordingly, the results of operations for
the
divested or discontinued subsidiaries are not included in the consolidated
results presented herein. In conjunction with the divestitures, CNE repurchased
and retired all preferred stock and made certain payments to related
parties.
In
conjunction with the reverse merger transaction, the Company retired 1,238,656
shares of Treasury Stock.
On
August
2, 2006, the Company entered into a stock purchase agreement with APR wherein
APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common
stock in the Company for $1.00 per share, making this a capital contribution
of
$15,000,000 in total. The stock will be delivered at the time the Company files
for registration. During the third and fourth quarters of 2006, the Company
received a total of $985,000 in capital contribution towards the stock purchase
agreement with APR to purchase up to an aggregate amount of 15,000,000 shares
of
common stock in the Company for $1.00 per share. During
the year ended December 31, 2007, the Company received an additional $500,000
in
capital contribution towards the stock purchase agreement with APR to purchase
up to an aggregate amount of 15,000,000 shares of common stock in the Company
for $1.00 per share. (See
Note
11 [5] - Stock Purchase Agreement.)
On
November 20, 2007, the Board of Directors approved a private placement offering
(the "Offering") approximating $2,000,000 to accredited investors at $1.00
per
share of Series A Convertible Preferred Stock. The Offering will consist of
the
Company's Series A Convertible Preferred Stock that will be convertible into
our
common stock. These securities are not required to be and will not be registered
under the Securities Act of 1933. Shares issued under this placement will not
be
sold in the United States, absent registration or an applicable exemption from
registration. As of December 31, 2007, the Company has received $280,000 from
investors towards 280,000 Series A Convertible Preferred Stock shares issuable
under subscription agreements covering the placement offering. Each Series
A
Convertible Preferred Stock is convertible into 20 shares of the Company’s
Common Stock. The holders of the preferred stock have no voting rights except
as
may be required by Delaware law, no redemption rights, and no liquidation
preferences over the Common Stock holders.
On
December 3, 2007, the Board of Directors approved a plan to compensate all
members of the Board of Directors at a rate of $50,000 per year and 250,000
shares of Company common stock effective January 1, 2007. This compensation
plan
applies to any board member that belonged to the Board as of and subsequent
to
January 1, 2007. Those board members that were only on the Board for part of
the
year will received pro-rata compensation based on length of service. As of
December 31, 2007, none of the shares under this plan have been issued and
the
Company has accrued $200,137 of cash and recorded additional paid-in capital
of
$60,041 for stock compensation based on the fair value of 1,000,685 shares
to be
issued to the members of the Board.
NOTE
9 -
GAIN ON WRITE OFF OF PREDECESSOR ENTITY LIABILITIES
During
the fourth quarter of 2006, the Company wrote off accounts payable and accrued
expenses in the amount of $395,667 associated with CNE, the predecessor entity
in the reverse merger transaction, which will not be paid. This resulted in
the
recognition of a gain reflected in the Statement of Operations for the year
ended December 31, 2006 in the same amount.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 -
GOING CONCERN
These
consolidated financial statements are presented on the basis that the Company
is
a going concern. Going concern contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business over a reasonable
period of time.
As
shown
in the accompanying consolidated financial statements, the Company incurred
a
net loss of $129,023,304 for the year ended December 31, 2007 and a net loss
during the development stage from inception in November 15, 2005 through
December 31, 2007 of $133,810,007. The Company’s operations are in the
development stage, and the Company has not generated any revenue since
inception. The Company’s existence in the current period has been dependent upon
advances from related parties and other individuals, and the sale of senior
notes payable. Finally, the Company’s principal asset, a marketing and
distribution intangible asset has been written off as impaired as discussed
in
Note 6 due to the fact that environment laws affecting timber harvesting have
become more restrictive in Papua New Guinea.
The
consolidated financial statements do not include any adjustments that might
be
necessary if the Company is unable to continue as a going concern.
NOTE
11 -
COMMITMENTS AND OTHER MATTERS
[1]
Engagement and Consulting Agreements entered into with individuals affiliated
with APR
Effective
May 20, 2005, the Company entered into an Engagement Agreement with Hans
Karundeng for business and financial consulting services for fees of $1,000,000
per annum. The term of the agreement is five years. Payments under the agreement
are subject to the Company’s cash flow.
Effective
August 1, 2005, the Company entered into a Consulting Agreement with Rudolph
Karundeng for his services as Chairman of the Board of the Company for fees
of
$1,000,000 per annum. The term of the agreement was five years. Rudolph
Karundeng is a son of Hans Karundeng. However, on May 1, 2006, the Company
accepted the resignation of Rudolph Karundeng as Chairman of the Board, but
he
continues to be a director of the Company. Peter Frugone has been elected as
Chairman of the Board until his successor is duly qualified and elected.
Subsequent to his resignation, it was agreed that Rudolph Karundeng’s annual
salary is to be $500,000 as a director.
During
the year ended December 31, 2007, the Company received additional advances
of
$100,000 from Hans Karundeng under his agreement and made cash payments to
him
of $556,000. During the year ended December 31, 2007, the Company made cash
payments of $7,000 to Rudolph Karundeng under his agreement. During the year
ended December 31, 2006, the Company received additional advances of $61,787
from Hans Karundeng under his agreement. During the year ended December 31,
2006, the Company made cash payments of $62,174 to Rudolph Karundeng under
his
agreement. During the period from November 15, 2005 to December 31, 2007, the
Company made cash payments to Hans Karundeng and Rudolph Karundeng of $563,000
under the agreements.
[2]
Management Agreement with Empire Advisory, LLC
Effective
August 1, 2005, the Company entered into a Management Agreement with Empire
Advisory, LLC (“Empire”) under which Empire provides chief executive officer and
administrative services to the Company in exchange for a) an annual fee of
$300,000 for overhead expenses, b) $25,000 per month for reimbursable expenses,
c) $1,000,000 per annum (subject to increases in subsequent years) for executive
services, and d) a one-time fee of $150,000 for execution of the proposed
transaction.
During
the year ended December 31, 2007, the Company made cash payments of $1,140,529
to Empire under the agreement. During the year ended December 31, 2006, the
Company made cash payments of $562,454 to Empire under the agreement. During
the
period from November 15, 2005 to December 31, 2005, the Company made cash
payments of approximately $364,000 to Empire under this agreement.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 -
COMMITMENTS AND OTHER MATTERS (continued)
[3]
Litigation- predecessor entity stock holders
The
Company was a party to a lawsuit where the plaintiff alleged that he was
entitled to $60,000 and 1,300,000 of common stock based upon CNE’s failure
to compensate him for services related to identifying financing for CNE,
based upon an agreement that was entered into between CNE and the plaintiff
in
April 2005. On November 28, 2007, the Company settled the lawsuit with the
plaintiff. In full and final settlement of the claims asserted in the action,
the Company has paid the plaintiff $10,000 in cash and issued the plaintiff
200,000 shares of the Company’s common stock having a fair value of $12,000,
based on the public traded share price on December 21, 2007. The settlement
resulted in a loss on debt conversion of $2,000 during the year ended December
31, 2007 because an estimated liability had been recognized prior to
2007.
In
May
2006, the Company was advised that they were in default of a settlement
agreement entered into in January of 2005 by CNE related to the release of
unrestricted, freely-tradable, non-legend shares of stock. In August 2006,
the
plaintiffs alleging the default obtained a judgment in the 17th Judicial Circuit
Court Broward County, Florida for approximately $1,000,000. On November 13,
2007, legal counsel engaged by Management brought a countersuit against the
plaintiffs alleging that the judgment obtained in that court was fraudulent
based on the plaintiffs’ perjury. The Company and its counsel strongly feel that
the plaintiffs’ claims against the Company have no merit, the likelihood of an
unfavorable outcome is very low, and is prepared to vigorously defend the
matter.
[4]
Consulting/Marketing and Agency Agreements
On
April
4, 2006, the Company entered into a consulting agreement with Dekornas GMPLH
(“Dekornas”) (a non profit organization in Indonesia responsible for replanting
of trees in areas that were destroyed by other logging companies) in which
the
Company will provide financial consultancy services to Dekornas for an annual
fee of $1.00 for the duration of the agreement. The term of the agreement is
effective upon execution, shall remain in effect for ten (10) years and shall
not be terminated until the expiration of at least one (1) year. As of December
31, 2007, the Company has not recovered any revenue from this
agreement.
In
April
of 2006, Arrow Resources Development, Ltd. entered into an agency agreement
with
APR to provides marketing and distribution services for timber resource products
and currently has an exclusive marketing and sales agreement with APR to market
lumber and related products from land leased by GMPLH which is operated by
APR
and it's subsidiaries, located in Indonesia. Under the agreement Arrow Ltd.
will
receive a commission of 10% of gross sales derived from lumber and related
products.
On
April
9, 2006, the Company entered into a marketing and distribution agreement with
Shanghai Heyang Bio-Technology Development Co., Ltd. (“Shanghai”), a China
limited company, in which Shanghai will supply and sell all of its timber
resource products through the Company. The Company will market, promote,
distribute and sell those timber resource products worldwide. The Company will
be entitled to ten percent (10%) of the gross revenue earned by the Company
from
the sale of the products. The term of the agreement is effective upon execution
and shall remain in effect for ninety-nine (99) years. As of December 31, 2007,
the Company has not recovered any revenue from this agreement. This agreement
has been cancelled.
On
April
14, 2006, the Company entered into a consulting agreement with P.T. Eucalyptus
in which the Company will provide financial consultancy services to P.T.
Eucalyptus for an annual fee, payable quarterly, equal to 10% of P.T.
Eucalyptus’ gross revenue payable commencing upon execution. The term of the
agreement is effective upon execution, shall remain in effect for ninety-nine
(99) years and shall not be terminated until the expiration of at least ten
(10)
years. As of December 31, 2007, the Company has not recovered any revenue from
this agreement.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 -
COMMITMENTS AND OTHER MATTERS (CONTINUED)
[5]
(a)
Stock Purchase Agreement
On
August
2, 2006, the Company entered into a stock purchase agreement with APR wherein
APR agreed to purchase up to an aggregate amount of 15,000,000 shares of common
stock in the Company for $1.00 per share, making this a capital contribution
of
$15,000,000 in total. The stock will be delivered at the time the Company files
for registration. APR is currently the principal shareholder of the Company,
owning 349,370,000 shares or 53.76%. As of December 31, 2007, the Company has
received $1,485,000 from APR towards the fulfillment of this
agreement.
(b)
Private Placement Offering- Series A Convertible Preferred Stock
On
November 20, 2007, the Board of Directors approved a private placement offering
(the "Offering") approximating $2,000,000 to accredited investors at $1.00
per
share of Series A Convertible Preferred Stock. The Offering was to consist
of
the Company's Series A Convertible Preferred Stock that will be convertible
into
our common stock. These securities are not required to be and will not be
registered under the Securities Act of 1933 and will not be sold in the United
States. As of December 31, 2007, the Company has received $280,000 from
investors towards 280,000 Series A Convertible Preferred Stock shares issuable
under subscription agreements covering the placement offering. Each Series
A
Convertible Preferred Stock is convertible into 20 shares of the Company’s
Common Stock. The holders of the preferred stock have no voting rights except
as
may be required by Delaware law, no redemption rights, and no liquidation
preferences over the Common Stock holders absent registration or an applicable
exemption from registration. On January 31, 2008, the Board of Directors
approved an extension of the private placement offering until February 15,
2008,
after which the offer was closed. As of February 15, 2008, the Company has
received and additional $75,000 from investors towards 75,000 Series A
Convertible Preferred Stock shares issuable under subscription agreements
covering the placement offering. Under the whole private placement offering,
the
Company has raised $355,000 in total.
[6]
Delaware
Corporate Status
The
Company is delinquent in its filing and payment of the Delaware Franchise Tax
Report and, accordingly, is not in good standing.
At
December 31, 2007 the Company has accrued $57,650 for estimated unpaid Delaware
franchise taxes incurred to date reportable during the year ending December
31,
2007. At December 31, 2006, the Company has estimated unpaid Delaware franchise
taxes for the years ended December 31, 2006 and 2005 in the amount of $57,650
and $69,699, respectively. Accordingly, as of December 31, 2007 accounts and
accrued expenses payable includes aggregate estimated unpaid Delaware Franchise
taxes of $185,001. The
Company will file the delinquent tax returns in the second quarter of 2008
and
pay the amount owed in full during the fourth quarter of
2008.
[7]
5 Year
Table of obligations under [1] and [2] above:
The
minimum future obligations for consulting fees and services under agreements
outlined in [1] and [2] are as follows:
|
|
|
Amounts
|
|
|
2008
|
|
$
|
3,833,760
|
|
|
2009
|
|
|
4,256,575
|
|
|
2010
|
|
|
2,449,382
|
|
|
|
|
$
|
10,539,717
|
|
The
Company also engages certain consultants to provide services including
management of the corporate citizenship program and investor relation services.
These agreements contain cancellation clauses with notice periods ranging from
zero to sixty days.
[8]
Appointment to Board of Directors
On
February 26, 2007, the Company announced the appointment of Robert A. Levinson
to its Board of Directors.
On
February 28, 2007, the company announced that it had accepted the resignation
of
John W. Allen as a member of its Board of Directors.
On
October 15, 2007, Robert A. Levinson resigned as a member of the Board of
Directors. On the same date, the board elected James L. Rothenberg to replace
Mr. Levinson as director.
ARROW
RESOURCES DEVELOPMENT, INC. AND SUBSIDIARIES
(A
DEVELOPMENT STAGE COMPANY)
NOTES
TO
THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 -
SUBSEQUENT EVENTS
Private
Placement Offering- Series A Convertible Preferred Stock
On
January 31, 2008, the Board of Directors approved an extension of the private
placement offering until February 15, 2008, after which the offer was closed.
As
of February 15, 2008, the Company has received and additional $75,000 from
investors towards 75,000 Series A Convertible Preferred Stock shares issuable
under subscription agreements covering the placement offering. Each Series
A
Convertible Preferred Stock is convertible into 20 shares of the Company’s
Common Stock. The holders of the preferred stock have no voting rights except
as
may be required by Delaware law, no redemption rights, and no liquidation
preferences over the Common Stock holders absent registration or an applicable
exemption from registration. Under the whole private placement offering, the
Company has raised $355,000 in total.
Non-
Interest Bearing Advance Received from Company Director:
In
March
2008, the Company received an additional $110,000 non-interest bearing advance
from John E. McConnaughy, Jr., a Director of the Company, which is due on
demand. This will be included in the amount “Due to Related Parties” in the
Company’s financial statements filed in Form 10QSB for the first quarter of
2008.
Exhibit
Index
Exhibit
No.
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive
Officer
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of the Principal Accounting
Officer
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. §1350 of Chief Executive
Officer
|
|
|
Certification
Pursuant to 18 U.S.C. §1350 of the Principal Accounting
Officer
|